Did you know, as of the March quarter, 2017, the average new mortgage in Melbourne is $384,000? If you have an interest rate of 3.74% compared to 4.74%, over the course of a 25 year loan, you could save around $64,000!* Interest rates aren’t the only factor though, offset accounts, redraw facilities, ongoing monthly fees, mortgage insurance and other features in a home loan can have a significant impact on how soon your mortgage is paid off and how much money you can save.
Home loans are structured differently with different banks offering different features. Some of the common features are:
Interest rates are usually the first thing people think about when saving money on their home loan. Interest rates go up and down. Over the past 10 years the average interest rate on home loans has been as high as 8.3% and is now under 4%! While the variable rate changes on your home loan, talking to your broker can see you get a better interest rate and save thousands over the course of your loan.
Fee free extra payments
The capacity to pay extra off your loan when you want can save you thousands in interest. If you get a $100 a week pay rise and put that straight on your mortgage, for the 25-year mortgage of $380,000 at 3.74% you would save $59,535.73 plus take 6 years and 32 weeks off your loan! Click here to use our extra payment calculator to find out how much you can save.
Home loan schedule
Mortgages are typically set to be repaid monthly. If you get paid weekly you might prefer to have a different home loan schedule and have your mortgage taken out weekly instead of needing to save money and ensure you have the full monthly payment each month.
With a redraw facility, you can deposit money into your mortgage and take it out when needed. Having your savings sitting in your redraw facility reduces the amount of interest you are paying, but once you take the money out you stop getting those benefits. This can be a great way to save for a holiday, renovations or simply to have a buffer in case of job loss or when planning for a new baby and taking time off.
Another option is having an offset account to keep your money in. It still reduces the amount of interest you are paying on your mortgage. For example, on a $380,000 mortgage, if you have $30,000 sitting in your offset account, you will only be charged interest on $350,000 of your mortgage which can save thousands over the life of the loan.
Interest only loan
With your home loan you are paying the principal and interest on the loan, however, many first home buyers and investors opt to have an interest only loan which reduces the upfront payments. An interest only loan means you only pay the interest on the money you borrowed for the home and the home itself is not being paid off.
Split rate loan
Can’t decide between a fixed or variable rate? With a split rate home loan, you can do both. Fix a portion of your mortgage and have the other portion variable.
Line of credit facility
A line of credit is like a loan on tap. It is determined by the amount of equity in your home and is capped to prevent overstretching your debt. It is charged at a higher rate than your mortgage and often comes with extra fees though.
Repaying something for 25 to 30 years can be a drain. A repayment holiday gives you time off repayments, generally, you need to have paid extra into your mortgage already to be able to do this. Reasons people look into this include pregnancy, changing jobs, job loss or other major life changes.
Home loan top up
Once you have enough equity in your home loan, you can look into a home loan top up, similar to redrawing on your mortgage, a home loan top up accesses your equity to allow you to renovate, make changes or do what you want. Redrawing on your mortgage gives you access to extra money you have put in there, whereas a top up allows you to access equity.
Home loan portability
The break costs of a mortgage, plus new establishment fees can be pricey if you move. Having home loan portability in your mortgage gives you the freedom to move without paying excess fees.
Given all the different features and interest rates with home loans, it’s a great idea to make the time to discuss your needs with a broker and make sure you have a suitable mortgage for each stage of your life. Click here to chat with a broker today.
*The above is for illustrative purposes only and assumes a fixed interest rate of 3.74% and principal and interest product for a 25 year term with no fees or charges applying and no additional repayments being made.
This article is not to be taken as financial advice. Every applicant’s personal situation will vary. We recommend seeking professional advice for your circumstances. All loans are subject to the normal lending criteria.