Home loan ‘bells and whistles’ need to be examined closely to see if they are worth having, remembering they usually come at additional cost. Consider the following factors to help you decide what is best for you.
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Your actual home loan needs
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Most people just want to pay off their loan as soon as possible, but it’s not always that simple.
For instance, an investor may want to maintain a higher loan balance at a lower rate of interest while making interest-only payments for tax reasons.
In other cases, a home owner may simply want to free some equity in their property for investment or spending.
Be sure you know your key objectives when selecting a home loan so you can be sure whether any extras offered are relevant or worthwhile.
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Planning your budget
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It’s also important to compare your income and spending.
If you manage your spending carefully and keep credit cards and other expenses in check, features like direct salary depositing and debit card access may be useful.
You will be able to deposit your salary into your loan account, control the amount you withdraw and ensure your income works hard for you.
But if your expense management could be improved, such cash access may not suit you.
It all comes down to looking at how you handle money and whether such extra features work for you. Here are some typical examples.
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Redraw facility
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This lets you make additional payments to repay your loan sooner, while still giving you access to those extra funds.
Be sure to check what fees are payable for using it and what the minimum redraw amount is. There may be no fees but the minimum redraw could be as high as $5,000 or more. The lower the minimum redraw, the more flexibility you have.
Some basic loans do not offer redraw as standard — or it may come with hefty fees and large minimums. Be sure to get full details.
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All-in-one loans
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These eliminate the need for separate savings or cheque accounts, enabling you to pay your income straight into the loan account and pay bills or obtain cash as needed. The secret is to limit withdrawals as much as possible.
All deposits go against your loan. Even money ear-marked for bills helps reduce interest until the actual withdrawals are made.
That means more of your money stays in your loan account, helping repay it faster while greatly saving you interest.
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Additional payment options
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These include options for making regular overpayments, or occasional lump sum repayments, to help reduce your loan and interest faster.
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Do the maths, make the comparisons
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Choose a lender that is happy to help you compare their various loans and select the one that is right for you.
They can show you ‘what if’ examples demonstrating which options work best and which can save you the most interest over the life of the loan.
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