Home loan features

Fixed rate

Advantages:

• Certainty on the repayments during the fixed rate period.

Things to consider:

• If interest rates decrease, repayments will not change during the fixed rate period.
• Break costs may apply if a fixed rate loan is refinanced or paid-off early, so a fixed rate loan may not be suitable if you plan to sell the property in the near future.
• Break costs may also apply in the case of additional repayments in excess of the threshold.
• Fixed rates only allow partial interest offset, not full interest offset.

Fixed rate home loans only

Advantages:

• Provides certainty on the fixed rate that will apply on the day of settlement.
• If on your settlement date the advertised rate for your chosen fixed rate period is less than your “locked rate”, you'll be given the lower of the advertised fixed rate and your “locked rate”.
  

Things to consider:

• A fee is charged.

Interest offset facility

Advantages:

• An interest offset facility is a link between a transaction account and a home loan which reduces the interest charged on the home loan.
• A full interest offset facility means home loan interest is charged only on the net balance (that is, the home loan balance less the transaction account balance).
• The principal and interest repayments remain the same, meaning that less is allocated to interest, and more is paid off the principal amount to pay the home loan off sooner.

Things to consider:

• This feature is available only in selected home loan products.
• No credit interest will be earned on the balance in the linked transaction account.

Monthly, fortnightly or weekly

Advantages:

• As interest is calculated daily, less interest is paid over the term of the loan.
• Paying fortnightly means that there are 26 fortnightly repayments each year which adds up to the equivalent of 13 monthly repayments. That's one extra monthly repayment every year. Over the years, these extra repayments can add up to thousands of dollars saved and years off the loan.
• Repayment frequency can be aligned to your cash flow, for example, if you’re paid fortnightly you can also make fortnightly repayments on your home loan.

Principal and interest

Advantages:

• Making principal and interest repayments means you’ll pay less interest over time and will pay off your loan in full by the end of your loan term.
• The more principal repaid, the more the equity in the security property increases and the more quickly you pay off the loan.

Things to consider:

• Repayments will be higher as principal is being repaid as well as interest (but lower than principal and interest payments after an initial interest only term).

Interest only

Advantages:

• Paying interest only will mean smaller monthly payments, as no principal amount is being repaid.
• Property investors may use interest only repayments to maximise their tax deductibility benefits (seek tax advice).
• Cash flow flexibility with repayments in the shorter term.

Things to consider:

• At the end of the interest only period your repayments will be higher to repay the principal over the remaining, shorter term.
• There may be more interest paid overall compared to a loan with principal and interest repayments throughout its term.

Find out more about Home Loan Repayment Types

Interest only in advance (IOA)

Advantages:

• A strategy to consider on an investment loan if the income in one financial year will be substantially greater than that in the next financial year, for example, maternity leave, planned redundancy, etc (seek tax advice).
• Payment of interest only in advance brings forward up to 12 months’ worth of interest expense into the current financial year which may have tax advantages (seek tax advice).
• Able to pay up to 12 months’ interest in advance while locked into a 12 month or longer fixed rate period.
• There may be a discount on the interest rate.

Things to consider:

• IOA is not available when the loan is predominantly for personal, domestic or household purposes.
• An amount, equivalent to up to one year’s worth of repayments is required.
• Unable to benefit from decreases in interest rates during the fixed rate period.

Up to 30 years

Advantages:

• The shorter the term the quicker you repay the home loan, and the less interest paid over the term of the loan.
• Able to have multiple loans with different terms secured over same property, meaning the term for a portion of the debt may be set having regard to likely depreciation of an asset, for example, when consolidating a car loan into a home loan.

Things to consider:

• The shorter the term the larger the monthly repayment amount.
• Mature age borrowers (aged 55 years and above) require a repayment strategy if the loan term exceeds retirement age.

Limited - for fixed rates.

Unlimited - for variable rates.

Advantages:

• Extra repayments above the minimum contractual repayment can be available for redraw at a later stage if required.
• Where additional repayment are made (and not redrawn) you will pay less interest over the term of the loan and the loan can be paid-off earlier.

Things to consider:

• If planning to switch the property from owner occupier to investment property loan, this might have an impact on the tax deductibility from negative gearing (seek tax advice). You might consider an offset account for this scenario.
• Redraw fee may apply depending on the product (and/or means by which the redraw is made).
  The bank has a discretion to suspend redraws.
• Any party in the loan can access the available redraw amount.

Optional

Advantages:

• This feature allows making progress payments to builders as construction work is completed.
• Pay interest only on the amount drawn during the construction phase.
• Switch the fully drawn loan to a suitable product after construction is complete.

Things to consider:

• During the construction phase drawdowns must be in accordance with the agreed drawdown schedule with the drawdowns occurring as each stage of construction is completed.
• A borrower's own funds must be spent first before drawing on the loan amount.

Required if loan to valuation ratio exceeds 80%

Advantages:

• Lenders mortgage insurance allows you to borrow more than 80% of the property value (up to a maximum of 95%), reducing the required deposit and enabling you to purchase sooner.
• The LMI premium can be financed as part of the home loan.

Things to consider:

• Adding the LMI premium to the loan will increase the size of the principal amount, increasing repayments and the interest paid over time.
• There are limits on the LMI premiums that may be financed.
• LMI protects the bank if you are unable to meet your home loan obligations, but does not remove your obligation to repay the home loan in full.
• Use of a family guarantee can reduce or eliminate the need for LMI.

Various options exist such as repayment holidays or parental leave

Advantages:

• Certain products may allow flexibility to reduce repayments below the minimum contractual one; or pause repayments altogether for a period of time.

Things to consider:

• Approval of the bank is required before this feature can be invoked.
• After the reduced or paused repayments period, repayments will be higher for the remaining loan term which may result in higher interest being paid overall.

Optional

Advantages:

• Approved limit can be drawn upon whenever required.
• Flexibility of revolving line of credit which allows for flexible access to loan funds through cheque or debit card facility.
• Monthly statements for easy accounting.

Things to consider:

• Not available where only purpose is purchase or refinance of your principal residence
• This home loan product is designed for investment and wealth creation.
• If only the minimum monthly repayments are made more interest will be paid compared to a loan with principal and interest repayments throughout its term.
• The loan does not have a specific term (that is, there is no maturity date) meaning you need to prepare a clear exit strategy for its full repayment prior to your retirement, or its ongoing servicing after retirement.

Optional

Advantages:

• Provides interest rates discounts, fee reductions or waivers, discounts on home/investment loans as well as other useful day to day banking products, credit cards, insurance and wealth management products.

Things to consider:

• Ongoing annual fee for a package.
• If the home loan is repaid and the package closed, then all other benefits cease too.

Optional

Advantages:

• A family guarantee uses the equity in a family member’s home to reduce or eliminate the need for lenders mortgage insurance.
• The amount of the guarantee is limited to the amount needed (when combined with the deposit) to equal 20% of the value of the property being purchased.

Things to consider:

• Family members may be unable to offer a guarantee over their property.
• The family member’s home may be at risk if you default on your loan.
• Legal advice is required for the family member guarantor.