What should be on your home loan checklist?

You have a choice as to how your interest is structured—as a variable, fixed, split, or capped rate. Here’s a breakdown of these different interest types and what sets them apart:

• Variable: Variable interest fluctuates with the market, so will go up and down depending on the current climate; as a result, your repayments will also rise and fall.
• Fixed: A fixed-rate home loan secures the same interest rate for a set period of time (usually one to five years), meaning your repayments will remain steady for the entirety of the fixed-rate period. When the term is up, you might be able to maintain the fixed rate by renewing it with your lender or refinancing it with another lender.
• Split: Hence the name, a split-rate loan gives you the best of both worlds, with a blend of fixed and variable interest rates. When the fixed-rate period ends, you’ll roll on to a variable rate, which will remain in place for the rest of the loan term.

There are two repayment options when it comes to home loans—principal-and-interest repayments and interest-only repayments.

• Principal and interest repayments are where you borrow money (the principal) and repay it with the interest that’s been added on top.
• Interest-only repayments, on the other hand, involve delaying repaying the loan principal for the first few years of the loan before you begin chipping away at the principal amount (plus interest). 

While repayments are much cheaper to begin with on interest-only repayments, they’ll sharply rise when you start repaying the principal amount, and it’s important to remember that only paying interest isn’t getting yourself any closer to paying off your property.

It’s also important to think about how often you want to make your repayments—weekly, fortnightly, or monthly. When deciding on your repayment frequency, it’s worth considering when you receive your wage, pay certain expenses, and your general budget - so you can pick a timeframe that makes sense for you and that you can comfortably pay back.

An offset account is a transaction account attached to your home loan, designed to help you pay less interest over the life of your loan. The account’s balance is ‘offset’ daily against your home loan balance, meaning you’re only charged interest on the difference between the total loan and offset amount. For example, if you have $40,000 in your offset account and owe $500,000 on your home loan, you only pay interest on $460,000.

If you want to pay back your home loan sooner, then you’re going to want a mortgage that lets you make additional repayments (i.e. repayments on top of your compulsory ones).

In general, home loans with variable interest rates allow you to make as many additional repayments as you want at no cost, whereas fixed rate loans often charge a fee and may also limit the number of extra repayments you can make. In terms of capped-rate home loans, you should be able to make additional repayments more freely than fixed-rate mortgages.

Another popular feature to consider having as part of your home loan is a redraw facility. If you’ve made additional repayments on your mortgage and are ahead of your repayments, a redraw facility allows you to take out that money and spend it on things like holidays, renovations, or paying off other debts. Keep in mind though, some lenders may charge a fee per redraw so make sure to read the fine print first.

Also known as a repayment holiday or mortgage freeze, a mortgage holiday is just what it sounds like—a break from your repayments for a limited period of time. This period is usually between three and six months but could be extended to up to 12 months.

Not every lender offers mortgage holidays but those that do often let you take one if you’re changing jobs, temporarily out of work, going on parental or maternity leave, or recovering from an injury or illness. You may need to pay a fee to apply for a mortgage holiday.

Home loan portability allows you to take the same loan with you if you sell your existing property and buy another home. Portability can save you the time, cost and hassle of setting a new loan, but may incur a fee.