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- Choosing the right home loan and features
Home loan features
When it comes to choosing a home loan, there are many factors to consider on top of interest rates. Having the right facilities could save you big time in the long run, so it's worth understanding what's available in the market and the benefits offered by different loan features.
Loan features wish list
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Other common loan features
This is a loan account that acts as a combined mortgage, savings and cheque account. You have a central mortgage account into which your salary and any other cash payments are deposited. The extra cash in your account reduces the principal amount owing and thereby the amount of interest charged. You then access the funds you have left over and above the minimum monthly repayment amount to pay monthly expenses.
These accounts often have a credit card linked to them, with the balance owing on the card at the end of each month being drawn down from the all-in-one account. Standard transactions such as ATM withdrawals and direct debits are also managed through the account so that many borrowers will not need another bank account. This can be an effective way of using the interest-free period on your credit card each month.
Pros:
- Offers flexibility.
- May be tax effective.
- Can result in interest savings if used with discipline.
Cons:
- Higher interest rate than some other products.
Professional packages are generally only available on home loan amounts over a certain value. Usually, the greater the loan amount the more likely the lender will be to offer additional interest rate discounts.
Pros:
- Potential interest rate discount.
- May include discounts on other banking products.
Cons:
- Borrowers may not need the additional services offered.
- Borrowers may be better off (financially speaking) with a basic variable loan.
These are payments that you make which are above the standard repayment for your loan. So for example, a $300,000 loan with a 7% interest rate requires a monthly repayment of $2,120. If you want to pay the loan off quickly and reduce the interest bill, you might make monthly payments of $2,500, which would include an extra repayment of $380.
Allows your salary to be paid directly into your home loan account. This is an advantage if you are not a disciplined saver.
Allows the borrower to switch from a variable to a fixed rate loan.
Allows a borrower to increase the limit on a home loan, using the equity in your property for other needs (e.g. renovations).
