Home loan comes with different features and options. Some of them are ‘nice to haves’ and some are ‘must-haves’. These all features come with associated cost. Before you choose these associated features it’s nice to ask yourself a question is it worth paying extra for features you may never use? You may be better off choosing a basic loan with limited features which you are going to use it for sure.
Offset Account
The most sought-after feature in home loans is offset account. Offset account is a transactional account tied with your mortgage, where you have a freedom to spend as you need. These features help you reduce interest payment over the period of time if you maintain a substantial amount in your offset account. For instance, if your home loan’s principal is $700,000 and you maintain $25,000 in your offset account, you will only pay interest on adjusted principal amount of $675,000.
However, it’s essential to note that offset accounts often come with associated fees, including an initial opening fee and ongoing charges. Before opting for an offset account, it’s crucial to crunch the numbers. Assess whether the interest savings you stand to gain will outweigh the costs associated with having an offset account. The value of having an offset account becomes more apparent when actively used and when the benefits outweigh the associated expenses.
Extra repayment
The extra repayment feature allows you to contribute more money towards paying off your mortgage, going beyond your regular repayments. This helps accelerate the loan payoff, potentially leading to substantial long-term savings. While available in both variable and fixed-rate home loans, it’s more common in variable-rate loans.
Some fixed-rate loans with this feature may have a yearly cap on extra repayments, and certain lenders may charge fees for these additional payments.
Redraw facility
A redraw facility is a feature often accompanying the extra repayment option in home loans. It allows borrowers to withdraw any additional repayments made, providing flexibility for various purposes such as renovations, car upgrades, or unexpected expenses. Keep in mind that some lenders may impose fees for utilizing the redraw facility.
This feature allows borrowers not only to make extra repayments but also to access these funds if needed in the future. The extra repayments contribute to lowering the outstanding debt, reducing interest payments. The redraw facility acts as a reservoir for these additional funds, allowing withdrawal in amounts beyond the minimum repayment.
Interest only
Loan repayments consists of principal and interest amount. The interest only features allow borrower to pay only interest for agreed period of time. This feature is mostly sought after by investors as they are able to claim interest payment on their home loan at tax time.
Repayment Holiday
Repayment holiday is a pause to your regular repayment. This feature comes handy while life throws curveball, like your partner going on a parental leave causing a significant drop in your income. This break allows you to divert cash to other priorities. Repayment holiday can be between 1-12 months depending upon lenders. Some lenders require you to have made an additional repayment before you are eligible for the holiday.