Sometimes some extras are worth it. What would frozen yoghurt be without popping pearls, chocolate fudge, cookie crumbs, strawberries, pretzels, gummy bears and tiny marshmallows? But you can have too much of a good thing. Maybe you would have been fine with vanilla froyo and a few peanuts – and now you have got an expensive mess.
The same is true of paying for extras on a home loan. A package that is full of features can bump up your rate without giving you what you will use. It might not even be clear what is included, or what the features are for.
A basic, good value home loan can often do the job just as well at a lower rate. If you are not sure which home loan extras cost you money, discuss your needs with the finance broker and he/she can guide you in the right direction with the suitable home loan product from the panel.
Fee-free extra repayments.
This is one of the best home loan features. Making extra payments on your home loan is a proven way to pay off the loan sooner. You should not be penalised for getting ahead on your loan, so look for one that allows fee-free, unlimited additional repayments without stinging you with hidden costs.
Ask the question from the broker: extra repayments with no fees.
Redraw from your extra payments.
Being able to withdraw from extra payments made on your loan means you can make them worry-free. The cash is available if you need it in an emergency, and that is a great incentive to pay down your loan faster without leaving yourself short.
Ask the question from the broker: fee-free redraw – do not pay to access your own money.
Access to an offset account.
If you have got savings or spare cash, an offset can help bring down the interest you are paying. It is an account linked to your home loan. The amount you have got stashed away is deducted from the balance of your loan when monthly interest is calculated, meaning you are paying off your principal faster.
The downside is that offset home loans can come with a higher interest rate. If you do not have a decent whack of savings to hold in the offset account, you could be better off using a basic loan and a high-interest savings account. For instance, if your loan balance is $400,000 and you have $50,000 in the offset account, the interest will only be calculated on $350,000 instead of $400,000. Most of the home loan products offer the offset with a variable rate and some lenders will offer 100% offset on fixed rates as well.
Ask the question from the broker: a 100% offset account, so the full value is saving you interest.
Flexible term lengths.
In the old days, 25-year mortgages were standard across the board. Fortunately, now the length range is as diverse as froyo toppings. Do not get caught with a one-size-fits-all term length. If you want to pay off the loan sooner and save on interest, opt for a shorter term with a higher monthly payment. A finance broker can let you choose the length you want – anywhere from 5 years to 30 years.
Ask the question from the broker: a home loan term that suits your budget.
Variable, fixed or split?
The vast majority of Australian homeowners choose a variable rather than a fixed-rate home loan. But if you are not sure which option will be best for you, look for one that lets you split between fixed and variable rate components. You will get the flexibility of a variable rate and the certainty of a fixed rate.
Ask the question from the broker: a loan that lets you split between fixed and variable rates.
Do not waste time guessing about extras. A local independent finance broker can help you decide which home loan features are a must-have and what toppings leave a bitter taste in your mouth. Talk to an expert at ASA Mortgage Brokers and you will only pay for what you need with the home loan product that suits your needs.
This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice. The original content first published on the ME Bank blog.