Loan Features

It is important to understand the features and jargon to know what you really need and what's just a gimmick. Don't pay for something you don't need.

Redraw

Redraw allows you to make additional repayments (over and above your minimum monthly repayments) and have access to these funds when you need them. This is also a tax effective way for saving money.

Offset

A mortgage off-set account is a savings account linked to your loan account. Money in your off set account saves interest off your loan. Interest earned on savings accounts is generally taxable; however with an offset account the account balance is just used to reduce your loan's interest therefore making this savings account non taxable. An offset account is usually only available with a Standard variable interest rate; not on basic variable interest rate loan. Redraw facilities and line-of-credit loans make use of your savings in much the same way; by paying your money directly onto your loan and getting it back out when required.

Portability

Loan portability allows you to sell one property and buy a new one without having to take out a new loan. The bank simply transfers your old home loan over to your new property. This can avoid the costs of setting up a new loan like stamp duty, application and legal fees. Problem with portability is that when most people change homes they are generally upgrading to a more expensive home and need the loan to increase. But a portable loan cannot be increased.

Split Loan

A split loan allows you to mix and match different loans. If you would like the security of a fixed rate home loan, and the benefits of a variable loan, you will get the best of both using a Split Loan option. You can also use it to as a budgeting tool, having one loan for investments and another for your home mortgage.

Comparison Rate

A comparison rate is a tool to help consumers identify the true cost of a loan. It is a rate which includes both the interest rate and fees and charges relating to a loan, reduced to a single percentage figure. It does not include government charges and fees which may or may not be payable. eg early repayment fees. It is also important not to rely solely on the comparison rate as it focuses on the cost but does not take into account benefits such as fee free banking or flexible repayment options. Find loans with similar features that you need, and then look to the comparison rates.

LMI (Lenders Mortgage Insurance)

Lender's mortgage insurance (LMI) protects the lender in the event that you default on your loan and the outstanding value of your loan is greater than what they receive from selling the property. If you borrow more than 80 percent of the value of the property they will ask you to pay their mortgage insurance. LMI is charged as a one-off premium, the premium will depend on the mortgage insurer, the loan amount and the equity you are putting into the property.

Interest Only

Interest only loans you pay the accrued interest each month with no reduction in principle to be 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 tax deductible.