June 01, 2016
So you now know what questions to ask to work out what features in a loan best suit you. The list below will explain those features that can be useful.
When selecting a home loan, borrowers should be familiar with
the features that may be incorporated in loan products. Features
help to differentiate between loan products and will determine whether a loan product is suitable for you.
Many lenders offer a 100% offset account as a feature with
standard variable loans. Regular repayments are made to the
loan as required; however, the borrower has a separate
transaction account with the same financial institution. The
borrower deposits their income into the transaction account and
uses it for day-to-day expenses. Any money in this account is offset
against the amount owing on the home loan and interest is
calculated on the loan balance less funds held in the offset account.
For example, if the home loan is $400,000 and the borrower has
$50,000 in their transaction account, they will only pay interest
on $350,000 of the home loan.
There may be higher monthly fees attached to the account and a
minimum balance may be required in the account.
A redraw facility allows the borrower to make extra repayments
and access the funds later if required. This encourages the
borrower to make extra repayments with the security of knowing
they can always gain access to the money later if necessary.
Low documentation (Low Doc)
Low Doc loans are useful for borrowers who are unable to substantiate their level of income using conventional documentation required by most lenders, or for borrowers who may have complicated financial structures.
Low Doc loans allow borrowers to minimise time and effort of collating tax records, bank statements, brokerage reports and other documents in order to obtain finance. Taking advantage of this feature may attract higher interest rates.
Professional package (Pro Pack)
Pro Packs offer the borrower a very competitive discounted rate along with a range of popular features. The qualification criteria for a Pro Pack varies from lender to lender, as does the level of discount offered.
In spite of the name, you don’t have to be a professional to get a Pro Pack discount. The majority of lenders base the criteria on the size of the home loan but some may require minimum income levels. The discount is usually a set percentage off the standard variable rate, with only a few lenders offering a
discount to fixed rate products.
Pro Packs normally have an annual fee but this is generally more than offset by the discounts received. They can also extend further than the home loan with fee exemptions on related savings accounts and credit cards and other bank services.
Ability to make extra repayments
These are payments that the borrower makes which are above the standard repayment for the loan, which may allow the borrower to pay off their loan quicker and reduce their interest bill.
This feature allows the borrower to take an existing loan to a different property when the borrower moves. Loan portability means a borrower can move loans such as a fixed rate, avoiding break costs.
Repayment holidays offer the borrower a complete holiday from
repayments or a period of reduced repayments. This can be useful during career changes or breaks, such as maternity leave. Often this is only available if the borrower is in advance on their loan.
Give me a call today to discuss these options and more.