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Loan Features Melbourne

Principal and Interest

The borrower repays the interest component and the principal on the loan simultaneously. This is the most common loan offered.

The interest is usually calculated each day on the loans current balance and the amount is divided by 365 to give the daily interest amount. As interest is charged monthly, the daily interest amounts for the month are added together and that total is added to your loan balance. Loans are advertised with an interest rate and a comparison rate which factors in all of the fees and charges on the loan.

Benefits

Interest rates are usually lower than interest only loans. As you are paying down the principal, you pay less than what you would pay with an interest only loan. You are building up equity on your home with a principal and interest loan.

Interest Only

An interest only loan will cover just the interest charged on your home loan for a period of up to five years. After that the interest rate will reset back to principal and interest for the remaining period on the loan.

Benefits

Your regular repayments will be lower during the interest only period compared to a principal and interest.

Lower repayments during interest-only period may mean you have more cash to use. For investors, an interest-only home loan may offer potential tax benefits.

Interest Only

Split Loans

A split home loan is your loan separated into a fixed interest rate and a variable interest rate home loan.

Advantages

  • Flexibility – You can usually decide what portion of the loan to fix and how much to leave variable.
  • Security – When interest rates are fixed your repayments on that portion of the loan will stay the same.
  • More Features – On the variable portion of the loan, you may have access to features that help you save on interest, such as an offset account. Check to see what restrictions are on your Loan.

Disadvantages

Not all home loans can be split, there is usually a smaller set of products to choose from.

A Split Loan means having two separate loans which means that there are more fees. You could be paying fees for two loans rather than one loan. Compared to fixing your loan you could pay more on the variable portion if interest rates increase.

Offset Accounts

An Offset account is a transactional account linked to your home loan with the same lender. This functions as a regular everyday account. You can deposit money into an offset account and use it for everyday purchases such as food, bills etc.

The money put into an offset account is that the money you put into it is offset daily against all of the balance of your home loan. For example your balance on your home loan is $500,000 and you have $100,000 in an offset account. Your interest will be calculated on $400,000 and not $500,000.

Redraw Facility

A redraw facility is attached to your mortgage and you are able to withdraw any additional repayments you have made on your mortgage. You do not have access to funds that were made as a minimum payment. It may take one or two business days to make a withdrawal. There may also be fees charged by lender and a minimum redraw amount. A redraw facility allows you to reduce the total balance of your home loan, instead of how much interest you will pay. This is suited for people who want to pay their mortgage off sooner, while still retaining a level of access to their extra repayments until the loan is paid off, closed off or refinanced.

Home Loan Packages

A package home loan is a home loan that combines your mortgage with other products into one bundle. You can receive fee waivers, no annual fee on credit cards, discounts on insurance, discounted or free financial planning services and discounted share trading.

You can usually bundle the following products:

  • A standard variable mortgage, potentially at a lower discounted interest rate.
  • A Mortgage Offset account
  • Transaction account or savings account
  • Credit card
  • Discounted insurance (Car, Home, Contents and Landlord)
  • Discounted risk insurance (Life, TPD, Trauma and Income Protection)
  • Discounted financial planning and share trading

You can receive a discount off the variable rate of up to 0.50% for the life of the loan. The fee for this package deal can be $395 per year.

Home Loan Packages

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