Mortgage features: top 8 loan features to consider.
When taking out a mortgage - potentially one of the biggest financial decisions you will ever make - lenders offer many home loan features.
From offset accounts to repayment holidays, there are plenty of options available. But what do they all mean? And which should you choose?
Deciding can be dizzying. But rather than knowing it all, most borrowers can benefit from mortgage savings and convenience with just a few added features.
Borrower requirements are diverse, so a feature that provides flexibility and choice for one mortgage holder may be an unnecessary cost to another.
It's important to remember mortgage options need to align with your goals as a borrower. So taking on all available mortgage features may not maximize returns.
Here's everything you need to know about mortgage features. In summary, they include the following:
FeatureDefinitionLow feesLow or no upfront application and ongoing mortgage feesSplit interest rateSplitting your home loan into fixed and variable ratesFlexible repaymentsLets you choose repayment frequency and methodAdditional repaymentsLets you make extra/volountary payments to pay off your loan soonerRedraw facilityAccess to extra repayments you’ve madeOffset accountA bank account linked to your home loan. The balance offsetsRepayment holidayLets you take a holiday from repayments by pausing payments dueLoan portabilityLets you keep the same loan when buying or selling property
One of the leading features of any home loan is low upfront and ongoing mortgage fees.
When you apply for a mortgage product, lenders charge various fees that can add up quickly. A low-fee mortgage feature reduces upfront fees or removes them entirely, potentially saving you thousands.
Vincent said this feature ranks among the best.
“Many people base their mortgage decision on the interest rate being charged, but they should also ask about all fees,” he said.
Can't decide between the benefits of a variable rate or the certainty of a fixed rate?
A split interest rate gives you the best of both worlds by combining the two. It divides your mortgage into a variable and split rate.
Split interest rates make budgeting easier by giving you some stability with your repayments and the ability to make voluntary repayments on the variable portion of the loan.
However, the fixed portion of the loan will likely have a limit on repayments and change if interest rates change.
Flexible repayments enable borrowers to choose how often they repay (i.e., weekly, fortnightly or monthly), giving you greater control of your financial planning.
Flexible repayments can be a good feature if you want to match your mortgage to your needs. For example, if you get paid monthly you might change your repayment frequency to reflect this.
Flexible repayment loans also give you more options for repaying your mortgage, including internet and phone banking or via ATM.
Hot tip: If possible, choose weekly or fortnightly repayments instead of monthly. This will increase your repayment frequency, potentially saving you thousands.
Being able to put extra money towards your home loan on top of your regular payments can help you save on interest and ultimately pay off your loan sooner.
Some loans can limit voluntary/additional repayments. So if you want to pay down your mortgage sooner, an additional repayment mortgage feature may be right for you.
Vincent said borrowers can usually make extra payments on a variable rate but a fixed rate is more restrictive.
“Some lenders don’t offer it on a fixed rate or cap additional repayments on the fixed rate,” he says.
A redraw facility is a mortgage feature that enables you to access (or redraw) additional repayments made on your loan.
So, if you have made extra repayments and are ahead on your loan, you can 'redraw' these at a later date.
Redraw facilities can be particularly handy over the course of a 25- or 30-year loan, especially if renovations, children or school fees are on the cards.
Offset accounts are loan facilities that link a savings or transaction account to your home loan.
The balance of this account is 'offset' against the amount you owe on your loan, potentially saving thousands if your offset balance is high enough.
Offset accounts can help reduce the interest you pay on a mortgage and are particularly handy during rainy days when money is tight but you've managed to save in the past.
Repayment holidays enable you take a break (holiday) from loan repayments when you need to you may need to direct your cash elsewhere.
Whether Christmas, a holiday, or challenging times, repayment holidays can give you welcome relief from mortgage repayments.
Lenders may provide a repayment holiday of between three to 12 months if you’ve made enough additional repayments.
It is important to note interest still accrues during a repayment holiday.
Home loan portability lets you keep your home loan when selling or changing homes.
When you take out a loan, the bank uses your home as security against the loan. Loan portability enables you to swap security when buying a new home.
Many Australians are unlikely to stay in the same home for 25 years. They can hence be a great feature for growing families or people who want to downsize.
UNO Founder Vincent Turner says there are a few key loan options that may fast-track home ownership and streamline the mortgage process.
“It’s important to get the right home loan features from the start so you aren’t paying for extras you don’t need. If you have too many features, watch out for what are considered ‘silly fees’,” Turner says.
The difference between a good and an outstanding home loan can include options such a split interest rate, no or low fees, a redraw facility, an offset account, flexible repayments and a repayment holiday.
“Lenders vary in term of what they offer and there is often a trade-off between having many features on your mortgage and paying a higher interest rate. So be selective, ask a lot of questions and choose a few key features that suit your strategy.”
Your Empire chief executive Chris Gray adds that borrowers shouldn’t assume a lender they already have a loan or bank account with will offer them the most competitive mortgage features.
“It might be convenient to stay with the same lender as you won’t have to resupply all the paperwork,” he says. “But your bank will probably work harder to get a new customer than they will to look after an existing one like you with the most competitive deal.
“Be mortgage savvy and consider a loan and its features beyond a lender you’re already with.”
Turner says UNO's online technology is able to compare the home loan features of 22 lenders in the Australian market within seconds.
“Your home loan is usually over a 30-year contract, so customers want key features that give them greater control over their finances with flexibility, convenience and the ability to shave years off their mortgage.”
Looking for the best deal on a home loan? A UNO broker can help compare deals from over 20 lenders.
UNO Brokers are available night and day for a quick review or your situation and bring expertise that will support better decision making that will save you time and money. Book in a quick call when it suits your busy scheduleGet Started