5 main home loan features you should consider

One of the first decisions you’ll have to make on your mortgage is what type of interest rate you’re going to go for—fixed, variable or split.

Here’s a rundown of what each option entails:

• Fixed:
  A fixed-rate home loan secures the same interest rate for a certain timeframe (usually one to five years), meaning your repayments won’t budge for the duration of the fixed-rate period. When the term is over, you may be able to keep the fixed rate by renewing it with your lender or refinancing it with another lender.
  
  
• Variable:
  The complete opposite, variable interest moves with the market, so will increase and decrease depending on the current climate. As a result, your repayments will also go up and down and you won’t always be forking out the same amount.
  
  
• Split:
  As the name suggests, a split-rate home loan has a bit of both. Interest will be charged on part of your mortgage at a fixed rate for a limited time, while the remainder will be charged interest at a variable rate.

You may have also heard of capped rate home loans, which essentially have an interest limit, which can’t be surpassed for a designated period. However, there are no capped rate mortgage on the RateCity database and you may find it difficult to find a capped rate mortgage product in the current market.

You can choose when you make your repayments—weekly, fortnightly, or monthly. While choosing more frequent repayments may save you a few dollars each time, it may be better to have a schedule that suits your needs, rather than risk missing a repayment. With this in mind, make sure to consider your wage, expenses and general budget so you can pick an installment that will work for you.

If, down the line, you find yourself with excess savings and want to make some additional repayments to your home loan, you’re going to need this feature to be able to do so.

Generally, variable-rate home loans allow you to make as many additional repayments as you want at no cost. The same can’t be said about fixed-rate loans, which are more likely to charge a fee or limit the number of extra repayments you can make.

A popular home loan feature to consider is an offset account. This is a transaction account that’s linked to your home loan, intended to reduce the interest you pay over the life of your loan. It works by ‘offsetting’ the account’s balance against your home loan balance daily, so you’re only charged interest on the difference between the total loan and offset amount. For example, if you have $50,000 in your offset account and owe $600,000 on your home loan, you’ll only need to pay interest on $550,000.

Want to be able to access money from your mortgage? You might want a redraw facility. 

As long as you’ve made additional repayments on your home loan 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. Do keep in mind though, some lenders may charge a fee for each redraw, so be sure to read the fine print before you get too withdrawal happy.