Different Features of Loan
The Loan Features attached to the Home Loan are important to help you manage the structure of the loan in order to meet your financial needs and goals.
Whether you want to pay off the loan faster or pay less repayments, there are Loan Features that can help you achieve those objectives.
Perhaps you want easy access to the loan balance through a Redraw facility or make the money sitting in an account “offset” the interest of your loan so that you pay less interest by using Offset Account Loan Feature?
Let our experienced brokers help you in selecting the most suited Loan Features for your Home Loan. Please see some common Home Loan Features listed below:
Offset Account
An Offset Account is essentially an everyday transactional account so you can use it for day-to-day expenses, very easy to deposit salary and withdraw money from compared to Redraw Facility. The Offset Account is linked to your home loan.
Basically, the money held in the Offset Account “offsets” the amount owing in your home loan. So, the interest payable is only calculated on the (balance of your home loan minus the balance in your Offset Account). Interest is calculated daily, so the more money in Offset Account, the less interest you pay.
Many lenders offer a 100% offset account as a feature with SVR (Standard Variable home loans). Monthly or annual fees may be higher for some lenders so you may need a minimum balance to realise the benefits. Repayments are made to the home loan account from the 100% Offset Account.
It is recommended that you seek independent financial advice before borrowing money for an investment strategy.
If you have an investment property with a tax-deductible investment loan:
Problem: If you make extra repayments into the home loan account and then redraw them at a later date, then that portion of the loan may no longer be tax deductible. The tax office assesses the purpose of the funds you redraw from the loan whether that portion of the loan is tax deductible.
Solution: If you make your extra repayments into an Offset Account instead of the home loan account then this problem may be avoided.
Another benefit in using Offset Account is if you make lots of extra repayments into the Offset Account of your home loan, then decide to turn your home into an investment property, you may still maximise your Negative Gearing benefits because you made your extra repayments into the Offset Account for your home loan instead.
Loan Splitting
With Loan Splitting, you can have multiple loan accounts with whatever balance you decide. For example, the loan amount can be split as half variable, half fixed (50% on Fixed rate, 50% on Variable rate). So, you can make extra repayments on the Variable Loan portion, while being protected in the Fixed loan portion from rising interest rates.
You can also use multiple loan accounts for loans used for different purposes, such as when using use your home as security to buy shares, the separate account for this purpose will be the part of your loan that may be tax deductible.
Repayment Holiday
If your circumstances change, a repayment holiday can be used to reduce or delay making repayments, during which the interest still adds onto your loan.
Redraw Facility
A redraw facility gives you the opportunity to make extra repayments on your home loan, which reduces your interest costs. You then have the option to ‘redraw’ the extra money (from past extra repayments).
A redraw facility differs from Offset Account as it may have limits to the withdrawal amount and the number of redraws allowed per year. Fee might be charged for each redraw and there may be a wait for the funds to arrive. For Fixed rates loan, redraw is often not available or the amount is capped.
Extra Repayments
These are extra loan repayments that you make which are more than the standard repayment for your loan. By doing so you will be reducing your interest costs and pay off your loan faster over time. However, for Fixed rate loans, extra repayments if often not available, or the amount allowed is often capped.
Professional Package
A professional package is where you pay one annual fee in return for discounts on a range of products and services from your lender such as interest rate discounts, waived application fee, waived valuation fee, waived monthly loan and cheque account fee, waived annual fee for credit card with rewards and discounted insurance products.
Interest Only
Interest only periods are usually for up to 5 years, however some lenders will consider 10 years or more. During an interest only period, each month you need to only pay the interest due, and not any of the principal. You benefit in freeing up more funds for other purposes, however you will not pay off the loan unless you make extra repayments.
Loan Portability
If you’re selling your property and buying a new one at the same time, with loan portability you can move your loan onto another property. In most cases for this to work the settlements must occur on the same day.
You save costs by avoiding the need to apply for a new home loan. Especially if you have a Fixed rate home loan, and selling your property before the loan term has been reached – the Loan Portability feature could save you the significant Fixed rate term loan Break Fees.
Direct Salary Crediting
With Salary Credit feature, you can have your salary paid directly into your loan account, often used by borrowers who are salary sacrificing into their home loan.