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4 must know home loan features that affect your repayments

Published on November 20th, 2020
  Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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One of the problems that plague both new and old mortgage holders is grappling with home loan features and terms that can eventually affect how they pay off their home loan. Terms such as redraw facility, lenders mortgage insurance, home loan split, and offset accounts have left some Australians muddle. This guide breaks down what each means and how it will affect the way you pay off your loan.

Redraw facility

A redraw facility is a feature that comes with a loan that allows you to overpay your loan. This basically paying more than the minimum repayments that are stipulated on your loan. Not all home loans will come with a redraw facility which is something that you can check with your lender.

You will be able to access your banked overpayment funds that have gained interest. It can be a pool of cash that can later be used for emergency situations, but also keep in mind that if you redraw these funds will affect the paying off your mortgage. There could also be a fee, known as the activation fee, that may come with it and can go up to range from $0 – $50 per redraw. You could also be limited to how many times you can use this facility and a cap on the amount that you take out.

Comparison rate

A recent survey among Getaway Bank found that there has been a 5% drop in the number of Australians that definitely understood what a comparison rate is, some Aussies are still not sure how this differs from the interest rate. A comparison rate is slightly higher than an interest rate and differs in the sense that it combines the interest rate with the fees and charges of the loan. It can help you basically calculate the true cost of a loan which can affect your repayments throughout the term of a loan. It is vital that you calculate the cost of a loan using a loan calculator to see if the loan is affordable for your situation.

Lenders Mortgage Insurance (LMI)

According to the survey, 40% of Australians did not know what Lenders Mortgage Insurance (LMI) meant. Some Aussie mortgage holders think that this is something that is paid out to them which is a misleading myth. It is a feature that is created to protect lenders from the risk of lending money to potential mortgage holders that have less than 20% of the deposit to put towards a loan. This basically means that if you borrow more than 80% of the Loan to Value Ratio you will attract an LMI fee which varies from lender to lender.

Offset Account

An offset account is basically a savings account in which you save money to reduce the interest on the amount that you owe on a loan. For example, if you take out a home loan to the value of $400,000 and place $100,000 in the offset account you will only be charged interest on the $300,000 on your loan which can help mortgage owners pay off their loan quickly.

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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.

Approval for home loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.

The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

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