Ready to reach that milestone of buying a home? If your answer is yes then you need to get the right home loan for your specific needs. You may have your eye on a place you’d like to call your own, but are unsure of what loan options are out there. Our team at Crest Mortgages & Finances are able to assist you through every step of the way. Tailoring your loan to meet your current needs.
What is a home loan?
A home loan gives you the ability to use your future income to purchase a property now, rather than waiting to save money over a long period of time. Generally, a bank or building society will analyse your income, expenses, assets, and liabilities and provide you with a guide on how much you can borrow. They then let you combine this with any savings you have to purchase a house.
1. Redraw Facility
- Allows you to dip into extra repayments put towards your home loan if you are ahead of your repayments.
- Drawing funds will reduce the benefit of additional repayments but can also be a useful source of additional capital when circumstances change.
- Keep in mind that some lenders have a minimum redraw amount and you may also be charged a fee for withdrawing from your home loan.
2. Offset Accounts
- A transaction account linked to your home loan. They provide easy access to funds while reducing the interest charged on your home loan.
- Withdrawals or deposits can be made with any other bank account, but any funds you hold offset the interest on your mortgage.
- EXAMPLE: if you have a $500,000 home loan and $50,000 in your offset account, you will only pay interest on the remaining $450,000.This could also help you pay off your home loan sooner.
3. Early Repayments
- Throughout the life of your loan, you may find you have some excess savings, an unexpected lump sum or additional income that can be used to pay down your home loan.
- If you are looking for a variable rate home loan, there usually won’t be a limit to how much you can pay in extra repayments. Some fixed rate loans, however, have limits on how much you can repay, either on an annual basis or over the life of the loan.
4. Interest Only Loans
- Rather than opting for the traditional ‘principal and interest’ type loan, where your monthly repayments help to pay down the balance of your loan, some lenders offer the option to pay interest only for a fixed period, usually a maximum of five years. During this period your repayments will be lower and after the term is over, you can choose to refinance, make a lump sum payment or begin paying off the principal of the loan.
- Interest only loans can be useful for property investors who can claim the interest as a tax deduction, or buyers who are planning on holding their property for just a few years before selling.
- However it is important to note that there are risks to this approach. The repayment amount on interest only loans can tempt you to spend more than you can afford, or if the property market is falling you could be left with a property that is worth less than you paid when the time comes to sell.
5. Split Home Loans
- Split home loans allow you to portion your mortgage into a variable component and a fixed component with different rates of interest.
- Fixing a portion of your loan is especially beneficial when interest rates are rising, as it can protect you from the impact of future rate hikes. Having a variable component can also be useful as it allows you to make additional repayments, as well as potentially accessing benefits such as redraw or offset accounts.
There are also many other features you can access as part of your home loan, including bundling your mortgage with credit cards, insurance and bank accounts. The key is to find what works best for you and your own financial circumstances.
For professional advice on all of these features, speak to your mortgage broker.