Home Loan Features Explained

Ever wondered what all those home loan features actually mean. Hopefully we can make life a little easier with an explanation of the most common ones.

Offset Accounts

This is a transaction account linked to your home loan that helps reduce your interest repayments. Banks calculate interest daily and charge accordingly so any credit balance that exists in your transaction account will be offset against the loan balance. So it pays to have you salary deposited into this account so you are always savings where you can.

Redraw facilities

Having a redraw on your home loan means having the ability to access surplus cash if you make extra repayments on your home loan. If your minimum monthly payment is $1,000 and you pay $2,000 than you have the ability to “redraw” the $1,000 dollars you over paid. Sometimes banks will charge you for this or set minimum redraw amounts but more often than not you can get them for free. This will depend on the type of home loan you get.

Additional Repayments

This basically means what it says. Having the ability to make additional repayments on your loan. While the majority of variable rate home loans have this feature fixed rate loans tend to place restrictions on the amount of annual repayments you can make.

Interest Only

This allows you to remove the principle repayment amount from your monthly bill for a certain term. A maximum of 5 years is pretty standard across the market but some lenders will provide longer options. It is more commonly used in investment loans but sometimes when people require additional cash flow it can be a good way to free up funds.

Cash outs/Top ups

This is an option for those people looking to increase their loan amount by drawing on existing equity in the property. This type of feature is often utilised by people looking to fund a renovation or buy another property.

Portability

This allows you change the property attached to you loan while retaining the same loan and is typically used when buying your next home. It can be a good cost minimising strategy but these days new loans are just as cheap and easy to complete.

Flexible Rate Options

This allows you to shift between variable and fixed rates or create product splits where you can have a portion of your loan fixed and variable. It can help you manage repayments in times of interest rate movement.