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Home loan features explained | Updated: 1:45:22 AM, Saturday August 20, 2011
By Mozo Home loan features explained

Alongside the type of home loan, you’ll need to consider what features you’ll need on your mortgage.

Alongside the type of home loan, you’ll need to consider what features you’ll need on your mortgage.

Line of credit. This option gives you access to the equity in your property – eg, for investments. You make regular monthly repayments on the loan, but you can also draw against the amount paid off.

  • Financial flexibility for investments, etc.
  • Allows you to pay off high interest credit cards or personal loans at a lower home loan rate
  • You can consolidate debt under one low interest rate
  • Affordable debt management over the life of the loan (assuming regular principal and interest repayments are made)
  • Higher interest rates can apply
  • Can reduce your equity in the property if mismanaged
  • Considerably more expensive over the life of the loan if interest-only payments are misused.

Extra repayments. Making payments above your monthly repayments reduces interest and the total cost of the loan, and can pay it off faster.

  • Some mortgages don’t allow extra repayments, or they incur a fee
  • Other mortgages allow extra repayments, fee free, but charge a higher interest rate.

Redraw facility. This allows you to put a larger slice of your income into paying off your home loan, along with the facility to draw against this equity if you need access to the money.

  • The higher repayments can cut interest and total cost
  • Redraw facilities can incur a fee to activate – as high as $300
  • Some mortgages allow a certain number of repayments or redraws each year, with minimum or maximum redraw amounts.

Offset account home loans. An offset account is like a transaction account attached to your home loan, possibly including a debit or EFTPOS card. The balance of your offset account is deducted from your home loan debt, so you incur less interest.

  • Eg, if you consistently have $5000 in an offset account, and a home loan of 7%, you’ll save $350 annually.

No exit fees.Various exit fees can apply to a loan, such as early exit fees, break fees, termination fees, deferred establishment fees and early repayment fees. You’ll want to check on any of these before committing.

Source: Mozo

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