Are you looking at getting your first home loan or perhaps your second and not sure what to look out for? With all of the talk about interest rates – falling, rising, fixed or variable – it's sure to have you confused and uneasy about whether you're making the right home loan decisions. We've put together a list of items for you to consider when applying for a home loan.
A: With a variable rate home loan, simply making your repayments fortnightly instead of monthly not only saves you money, but may also cut years off the term of your mortgage. With a fixed rate loan, during the fixed rate period repay the maximum extra amount permissible by the lender under the terms of your loan. You could also use a 100% offset account to help reduce the interest you pay.
A: Locking in a home loan and knowing that you can make those few helpful extra payments can take a stress off your shoulders. However, depending on which home loan you choose and with which lender, you can wind up paying penalties for making those extra repayments.
Generally, with a fixed rate home loan, during the fixed rate period you can repay an additional amount up to a specific value in extra repayments without extra costs. However this amount varies from bank to bank so check with your lender to see how extra repayments might affect you. However with variable rate loans most banks will allow you to make extra payments. Just look out for which bank charges you penalties and which doesn't.
A: In general, buying a home is a satisfying experience until, that is, you get the urge to move on and realise the costs can be substantial. Exit fees were previously a major deterrent from switching home loans due to the costs involved if borrowers wanted to either sell and finalise the loan early or simply refinance to a cheaper loan.
The good news is that as of July 1st 2011 however, the Federal Government stepped in and decreed that lenders can no longer charge customers for repaying their home loan early.
A: If you are ahead in your scheduled home loan repayments most lenders will allow you to apply for a home loan repayment holiday of between 2 – 12 months. However the loan has to note this feature and it must be cleared by the bank in question. You are able, however, to make payments during your stopped period if you wish. There are fees included with this feature so give the bank a call.
A: Financial difficulty may mean different things to different people. Perhaps you have lost your job, have an illness, are behind in your loan/credit card repayments or think that you might be unable to make your repayments in the future due to some event.
If this happens to you, it is important to contact the lender as soon as possible. There are options available to customers whose circumstances temporarily prevent them from making their minimum repayments on their loans and credit cards. Solutions offered to you will differ depending on your circumstances.
A: A Split Loan simply is cutting your loan into portions. Usually the split is a Fixed Portion and a Variable portion. The split can be set up at any percent eg: (50% - 50% split) or (70% - 30% split).
By splitting your loan, you are spreading the risk. If the rates go up there may be a benefit to you however if the rates drop than you may be caught paying too much. It is for that reason some people like to hedge their bet. Others prefer the security of a Fixed Loan ensuring a non-fluctuating rate of payment and allowing for better budgeting.
A: For those who have a home loan in place but still plan or need to change addresses, a portable loan can be very useful. These loans give you the opportunity to change the security held by the lender over your loan while maintaining your original loan potentially saving you thousands in stamp duty or lenders mortgage insurance.
A further convenience is that all your BSB and Accounts numbers stay the same, so you don't have to re-arrange all your direct debits, automatic payments etc. This avoids any interruptions to your bill payments.
A: A redraw facility is a basic home loan feature which allows borrowers to make extra loan repayments when more cash is available, and access the funds later when money is tight. This is a great way to smooth the flow of your finances throughout the life of your loan. Most Australian home mortgage plans, including fixed and variable rate loans, feature a redraw facility.
A: If you want to pay off your mortgage sooner, a home loan with an offset facility can be a quick and simple option.
A mortgage offset account is simply a savings account linked to your loan account. Unlike an all-in-one loan that combines your credit card with your transaction accounts, an offset account works like a regular savings account. The big difference is that the balance in the savings account is offset against that owing on the mortgage. Any 'notional' interest on savings is earned at the same rate as the linked loan.
Over time, savings in your offset account can help to reduce the loan principal, allowing you to pay off your loan sooner or build up equity.