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Home Loan Features
Each of the aforementioned loans can have many variations. The following are a few features that you may want as part of your loan package:
Interest Only Repayments
Interest only loans require no principle reduction to be made. You only have to pay the accrued interest each month. Theoretically, the loan need never be paid out as long as interest payments are made. Many lenders only allow a maximum period of 5 years for this type of loan. Interest only repayments are commonly used for investment purposes where the interest repayments are deductible.
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Offset Facilities
An offset facility is a way to reduce your mortgage more quickly. A mortgage-offset account can replace your personal transaction account. You have your salary paid straight into your offset account that is linked to your mortgage but not a part of it. You can access your money in the same way you would if you still had any other accounts - ATM, Eftpos, Cheque, telephone & Internet Banking.
Offset and redraw are close relatives in that they essentially achieve the same thing. You pay extra in, allowing you to decrease the balance of your mortgage that is being charged interest. Then you can get it back again if & when you need it. Offset works by reducing the amount of interest charged on a loan. Every dollar deposited into the account means that same dollar in the loan is not charged any interest.
For example, if you have a mortgage of $100,000 and have $3500 in an offset account, your mortgage interest would be calculated on $96500. Offset is tax effective because the account itself earns no interest thereby legally minimising taxable income.
Redraw
Redraw is the ability to draw back repayments that have been made over and above the minimum required. Money can only be withdrawn up to the balance the mortgage would have been at the date if only standard monthly repayments had been paid.
As an example, if you required to pay $1000 per month but paid $1200 instead, after six months you would only be allowed to redraw the extra $1200. If used properly, a redraw facility can save you an interest charges while allowing you easy access to the additional repayments.
Split Loans
Splitting your loan can be an effective way to cover yourself against interest rate movements. You divide your loan into two portions - part fixed and part variable. The variable part of you loan will move when the market does, but the rate on the fixed portion of your mortgage remains static.
Most institutions require a minimum dollar amount in each split portion and some charge per split so you should check with your mortgage broker about all costs beforehand.
Split Loans are sometimes called "combination loans".