How to choose a home loan

Use our tips to negotiate the mortgage maze.
 
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  • Updated:19 May 2008
 

04.Features to look for

Home loans have many different features which can affect their overall cost and convenience. It's important not to judge them solely on the interest rate and up-front fee.

  • Extra repayments: Some loans — particularly those with a fixed interest rate — may limit the amount you can pay off your loan without having to pay a break fee. Paying an extra 10% could save you thousands of dollars. See our report Fast-track your mortgage.
  • Redraw facility: With many loans, if you make extra payments you can get the money back later. This can have considerable tax advantages and provide useful security as you can store your savings in your mortgage. Some redraw facilities are much easier to access than others — check whether you'll be required to apply in writing, how long it might take for approval to come through, and the costs involved.
  • Repayment holidays: Some mortgages allow you to take a 'repayment holiday' for a short period such as six months, for example, if you just had a baby. Check the conditions, sometimes you can only make use of this features if you've made extra repayment or you may have to make higher repayments after the repayment holiday to make up for it.
  • Other benefits: Lenders may give you an exemption from the fees and charges on other accounts such as a free transaction account.
  • Mortgage offset accounts: This lets you deposit money in an account and receive interest in the form of a reduction in the interest due on your loan. Because offset accounts don't actually pay you any money, they don't add to your taxable income — so like redraw facilities they offer tax advantages.

    However, always make sure that the offset account is worth the higher interest rate you might be paying. Some offset accounts can be used as your everyday transaction account, while others are only suitable for putting your savings into. And in some cases you may be able to have one or more of a range of ‘ordinary' accounts linked to your home loan all acting as offset accounts.
 

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