Which mortgage features do I actually need?

Borrower requirements are diverse, so a feature that provides flexibility and choice for one mortgage holder may be an unnecessary cost to another.
Sonja Koremans

Lenders offer many home loan features. But rather than taking on the whole gamut, most borrowers can benefit from mortgage savings and convenience with just a few added extras.

Borrower requirements are diverse, so a feature that provides flexibility and choice for one mortgage holder may be an unnecessary cost to another. Mortgage options need to align with the borrowers’ goals, so loading up on features won’t necessarily maximise returns.

According to uno’s founder, Vincent Turner, there are a few key loan options that may fast track home ownership and streamline the mortgage process.

Read: Choosing the right home loan

“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 Home Loans’ 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.”

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Some of the most popular mortgage features include:

1. Low fees

Turner rates no or low upfront and ongoing mortgage fees as one of the leading features in any home loan. “Many people base their mortgage decision on the interest rate being charged, but they should also ask about all fees,” he says.

2. Split interest rate

If you want the benefits of a variable rate home loan but the certainty of a fixed rate, ask about splitting your loan into a ratio that best suits your needs.

3. Flexible repayments

This feature offers the capacity to choose how often you repay (weekly, fortnightly or monthly) and gives you greater control of your finances and planning. Payments should also include the ability to pay through multiple options including the internet, phone or an ATM.

4. Additionalrepayments

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. Turner says 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.

5. Redraw facility

Many home loans let you not only make additional repayments, but also redraw these repayments to use as a reserve of funds. These 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.

6. Offset account

This loan facility is a savings account which is linked to your home loan. It helps reduce the interest you pay, as your savings balance is offset against the amount you owe on your loan.

7. Repayment holiday

This option enables a break from making your loan repayments for those occasions where you may need to direct your cash elsewhere. Lenders may provide a repayment holiday of between three to 12 months if you’ve made enough additional repayments.

8. Loan portability

If you are unlikely to own the same house for 25 years, check that you can shift your loan if you move to a new property.

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What to do next:

This information is general in nature and you should always seek professional advice when making financial decisions.

Sonja Koremans
* Three year fixed rate, owner occupier, P&I loan with a maximum LVR of 95% and a loan amount >$150,000. Lender rates and products may change. We cannot suggest you remain in or switch to any loan until we complete our assessment. Fees and charges apply. ^ WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rate is calculated on the basis of a loan of $150,000 over a term of 25 years. ± All loan applications are subject to uno assessment and lender approval. uno does not guarantee that it will be able to find a customer a better loan than the one they currently have or to save them money.