Not long ago all mortgages were almost identical. The major
lenders only offered a ‘standard loan’ therefore
all you had to do was find the lowest interest rate and you
would have found the best available loan. No longer!
Now, even if the interest rate on two loans is identical,
be warned that there can be a huge variation in how a loan
can be conducted.
How do you work out which loan is right for you?
It is all in the features and benefits of a loan along
with the fees.
A feature of a loan is something that the loan allows you to
do.
A benefit is the positive outcome that you can get by using
that feature.
Some of the most commonly used features and
benefits are:
Feature. |
Benefit. |
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| Fix the interest rate.
|
Fixing your interest rate means your repayment is
at set amount for period, usually up to five years.
At the end of the fixed period the loan automatically
becomes variable again.
Fixing a loan may cause restrictions on redraw and lump
sum payments. Beware of penalties if you finalise a fixed
rate loan while it is still fixed. |
| |
| |
| Interest Only. |
Pay a lower
payment because you are paying only the interest on
your loan. This means of course that your balance does
not reduce. Usually used for investment properties
to free more funds to pay off an owner occupied (and
therefore non tax deductible) property earlier. |
| |
| |
| Splitting your loan. |
Enables
you to literally break your loan into different parts
with different features on each part. For example half
fixed and half variable. Also handy for keeping investment
portion of a loan separate to the personal portion.
Beware lender who charge account fees on both portions
of a split loan. |
| |
| |
| Extra payments.
|
Allow you to pay more than
your contracted repayment either regularly or in lump
sums and then only charges you interest on your new lower
balance. Some lenders insist that you be in advance a
certain amount before being allowed to redraw. |
| |
| |
| Redraw. |
Allow you to ‘take back’ those
extra payments which you have made on top of your required
minimum repayments, usually within 48 hours with no approval
required. |
| |
| |
| Portability. |
Your loan can be transferred
from its current security to another security at minimal
cost compared to starting your loan all over again. |
| |
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