Blog 3 loan features you might not have considered

3 loan features you might not have considered

19 May 2014
3 loan features you might not have considered

When taking out a home mortgage, there are many things to consider.

First, you'll need to work out how much you can afford to borrow and what your weekly, fortnightly or monthly repayments will be. An online mortgage calculator can help with this.

Think about how quickly you want to pay off your loan. There are sometimes fees for paying off your mortgage early, so make sure you clarify what these penalty payments could be.

Once you've established these figures, you'll need to pick the right kind of loan. If you choose a fixed rate loan, you can lock in an interest rate and know exactly how much you'll be paying on a regular basis.

However, if the official cash rate drops, this could influence lenders to reduce their interest rates. If you have a variable loan, you can make the most of drops in the interest rate, but not if you have a fixed rate.

Variable loans often come with useful features, too. Think about if any of them would be useful for your personal situation, whether you're taking out a mortgage refinance or purchasing an investment property.

Repayment holidays

Repayment holidays are usually agreed to in advance with the lender. For a specified period of time, you won't have to pay back your mortgage - either in part or in full.

However, interest will still be added on to your home loan balance during this time.

This means you may have to make additional payments prior to the repayment holiday, to cover this accruing interest and the fact you won't be paying principal.

Though it means you won't pay your home loan off quite as fast, a repayment holiday can be useful if you have a significant event coming up, such as a wedding.

Parental leave

If you're thinking about starting a family or having another child, the parental leave feature on some loans may benefit you.

You can defer payments or reduce them over a set period of time following the birth or adoption of your baby. In some ways, this is similar to a repayment holiday - it's just more specific.

Interest will still be charged during this period, so it's worth planning in advance to cover this cost. Even if you set aside a small amount regularly, this can help when your new bundle of joy arrives.

Some lenders will charge a fee to use this feature - be sure to weigh up the financial costs against the convenience. You may find that a one or two month break from paying principal on your loan can ease the stress associated with having a newborn in the house, so you can enjoy this special time.

Redraw facility

You can access additional funds with a redraw facility, which may be useful for unexpected costs that arise.

If you have a redraw account, you can make extra payments toward your home loan. Many people like the idea of this as the quicker you pay off the principal, the better your home equity will be.

However, this feature allows you to redraw those extra payments later on if you wish. Just like an offset account, what you don't redraw will help reduce the interest payable on your loan, but it's good to have the peace of mind that you can still access your money should you need it for a holiday, urgent repairs or other unexpected costs.

As with a lot of bonus home mortgage features, this isn't usually offered with fixed-rate home loans. However, if you have a variable home loan, redraw facilities are often available at no cost - just ask your lender.