With hundreds of loans to choose from it can be tempting to focus on cheap interest rates. But over the life of your loan, interest rates are likely to both rise and fall, and it can be home loan features that help you get ahead, and stay ahead, with your mortgage – and even make your money work harder.
We caught up with Luke Torossian, Franchisee at Aussie Engadine, for valuable tips on how to work out the loan features that are right for you.
Don’t be blindsided by the cheapest home loan
After 12 years in the game Luke says it’s common for home owners to focus on low interest rates and fees, but that could be a costly mistake.
He explains, “My customers’ first question is often “Which bank has the lowest interest rate?” That’s why it’s important to explain how the various home loan features work because when you know how to utilise them, features can be a powerful tool to pay off your home loan sooner.”
In fact, Luke cautions that some of the cheapest loans can be the least flexible.
“No-frills loans and online lenders may offer what appear to be ridiculously cheap rates but there are downsides.” He adds, “You’re likely to get a very basic loan without useful features like an offset account and unlimited fee-free redraw. Worse still, it can be very difficult to make changes to these loans and home owners may have to refinance to get the features they really need. So what may seem like a good deal at the time can end up costing more in the long run.”
Look for features that are right for you – not someone else
With a wealth of loan features available, Luke advises against choosing a home loan based on what works for someone else.
“My customers often ask about various loan features because a friend or relative has mentioned them. However, everyone’s circumstances are different and what works for one person won’t necessarily be the right choice for you. The key is to have the loan features that suit your particular needs both now and in the future.”
Luke explains, “For a home owner on a tight budget for instance, a fixed rate loan can be very attractive. It may not allow unlimited extra repayments but that may not be so important if you don’t have spare cash, and the repayments will stay the same for the fixed term so the loan is easier to budget for.”
“But if it looks like your income could increase in the near future or you’re expecting a bonus at work, it can be worth splitting your loan between fixed and variable rates. This offers the flexibility to pay a little bit more off your home loan when you’ve got some extra cash.”
At the other end of the scale, Luke notes, “For a couple planning to start a family, a variable rate loan with features like a repayment holiday can be helpful to plan for and manage the switch to a single income.”
Benefits of offset accounts – make spare cash work harder
Luke says offset accounts are very popular, especially among his more established customers.
“Home owners with cash savings are often looking for ways to put that money to work, and plenty of my customers love their offset accounts.”
An offset account is a savings or transaction account linked to your home loan. The balance of the offset account is subtracted from your home loan when monthly interest is calculated, making it an effortless way to save on interest costs.
”Along with savings on loan interest, an offset can also help home owners forge ahead financially”, Luke says.
He explains, “Your home loan rate will probably always be higher than the interest rate paid on savings. So with an offset account, you’re likely to save more than you’ll earn on a separate savings account or term deposit. And when you consider that interest earnings are fully taxable, it’s easy to see how an offset account can give home owners more bang for their buck.”
That said, it comes back to knowing what is right for you.
“With an offset account your savings are at call,” notes Luke. “This means your money is always available, which is very handy if unexpected expenses crop up. But if you’re not disciplined and find yourself dipping into the cash this feature may be too convenient, especially if you’re saving for a particular goal.
“For these home owners, a better option may be to deposit savings directly into their home loan,” says Luke. “Your cash is still working hard to pay down the loan, and features like fee-free redraw mean you can always access the money if it’s needed. The difference is that there’s a bit of breathing space, usually just 24 hours, before you can access the cash, but this can be enough to make people think twice about whether they really want to pull the cash out of their home loan.”
Speak with a professional
The bottom line is that there is no “one-size-fits-all” home loan. “Each of the different home loan features are useful,” says Luke. “But you won’t know which work for you until you speak with a professional.”
Set a date to speak with an Aussie Broker today to learn more about the home loan features that are right for your needs – plus tailored tips on how to make the most of your home loan.
