Helen McMurdo
12th October 2022
Extra Repayment
What is it?
Extra Repayment refers to the additional amount the lender will allow you to contribute towards your home loan on top of your minimum repayment. Normally there’s no limit to the extra repayment amount for variable rate home loans
But…
A penalty (often known as a ‘break cost’) may apply if you make extra payments above the allowable threshold during a fixed interest rate term.
Most lenders will allow you to make an additional $10,000 per year in extra repayments during your fixed term without incurring break cost.
This can vary depending on the lender and product.
Why should I care?
Making extra repayments can save you a lot of money and pay off your home a lot faster by reducing the amount of interest (and potentially fees) that you would’ve had to pay if you only made the minimum repayments.
Loan Increase
What is it?
This is also known as a ‘top up. A request is made to your current lender to increase the limit on your home loan without taking out a separate loan.
People generally choose this option to save on fees, lessen paperwork and speed up approval turnaround time compared to applying for a new loan.
A limit increase also allows you to keep your current home loan interest rate for the increased amount.
Why should I care?
If you’re looking to take out additional funds you’ve paid into your home loan (e.g. for renovation, debt consolidation or cash out for personal use), then this type of flexibility may be just what you’re looking for.
Locked Rate
What is it?
This feature will allow you to lock-in the interest rate. Locked rate is generally available for fixed interest rate products and valid for up to 90 days (from the day the application is submitted).
Depending on the lender, there may be a cost involved (either a % of the loan amount or a flat fee) as part of the upfront fee payable to the lender for this option.
Why should I care?
If you’re concerned that the interest rate may increase from when the lender processes your application to you signing the contract, then you may want to consider this option.
Offset
What is it?
Offset refers to the ability to take into consideration the money you have sitting in the offset account when the interest is calculated on the loan balance. For example, if your home loan balance is $400,000 and you have $50,000 in your offset account, the interest will be calculated on a balance of $350,000.
Why should I care?
An offset facility can be a great way to reduce the cost of the loan with the added flexibility to access the funds.
Since the interest on your home loan is calculated daily, the funds in the offset account are constantly helping to reduce the interest charged on your home loan.
Partial Offset
What it is?
This is a type of offset whereby only a portion within the account can be used to offset the loan balance. This feature is typically available for fixed rate products and each lender’s product will vary on the offset portion. - - - - - -
Why should I care?
If you are looking to fix your repayment amount for a certain period of time and have a cash lump sum to deposit into the offset account where the funds can be easily accessible, then this may be an option you want to explore.
Package
What it is?
Package refers to a type of product or feature (depending on the lender) that some lenders (mostly larger financial institutions) will offer as part of their home loan range. Generally, a home loan package product will have a lower interest rate with some of the upfront fees waived but can incur an annual fee.
Some lenders will also offer credit cards, insurance and/or other ‘perks’ when the home loan is taken up as a package.
Why should I care?
People often take a package for the discounted interest rate, a lower or $0 upfront fee, a credit card with no annual fee and features (such as offset facility) that are not typically available in a standard home loan.
Portability
What it is?
The portability feature allows you to move your home loan product/account from one property to another without having to close (refinance) the current one and applying for a new one.
Why should I care?
If you’re looking to sell and buy another property to live in, this may be a more cost effective way to do it.
Redraw
What it is?
A Redraw facility allows you access to any extra money you’ve contributed to your home loan. This means you’re able to use the excess funds available if you’ve been paying more than the minimum amount.
Why should I care?
Redraw facilities can give you flexibility when needed, and allow you to make extra repayments to pay off your loan faster.
Repayment Holiday
What it is?
Being able to ‘take a break’ from your mortgage repayments is called a Repayment Holiday, available through some lenders and helps alleviate the stress of maintaining a mortgage through difficult times. This works by suspending repayments for a set period while still accruing interest, which is added to the outstanding loan balance.
Once the holiday is over, repayment amounts are calculated with interest payable on the higher principal amount.
Why should I care?
This option might be appealing in situations such as parental leave, temporary employment uncertainty or unexpected medical bills.
Although this feature can be a neat short-term solution, it may result in you having to pay more interest over the life of the loan and taking longer to clear the balance.
It’s important to seek advice to ensure you are making the right decision for you and your family’s circumstance before entering into such arrangements with your lender.
Splitting
What it is?
Having a split mortgage lets you assign different portions of the total loan amount to different interest and/or repayment types. For example, you might allocate 25% of your loan to a 4 year fixed rate product with interest only repayments, with the other 75% of loan as a variable rate with principal and interest repayments.
You can decide the portion sizes according to the solution that suits you and your circumstances.
Why should I care?
Splitting can be used for a number of reasons, such as getting the benefit of multiple products (like an offset account) without having to take out multiple loans.
It can also be a good way of partially protecting your loan from changing interest rates, if managed correctly.
Interest In Advance
What it is?
Interest in Advance is an option for investors who are seeking an interest only loan. It allows them to pay for the interest of the next year upfront. - - - - - -
Why should I care?
If you’re an investor, this feature can give you discounts on your interest rate and may allow tax savings, but may restrict your cashflow.
