Get to know your home loan options

Author: ME

Published at: 6/21/2016 3:28:58 PM



Relocating to a new home is also a good chance to rethink your home loan options. But how good is your home loan knowledge?


This is a worry. Research by ME found home loan features are a surprisingly grey area for many Australians. Take a look at these findings:


  • 55% of respondents had no understanding of an offset facility
  • One in four (26%) had no understanding of extra repayments
  • More than half (53%) aren’t clear about what a split loan is.


Yet these are all valuable features that can cut years from the life of your loan.


The thing is, if you are relocating to a new home, now is a great chance to sweep a broom through your home loan – and if it’s not up to scratch it could be worth refinancing to a different loan or lender.


So let’s demystify home loans and clear the confusion.


Extra repayments

These are a home owner’s best friend. Any extra loan repayments come straight off the balance of your loan. This reduces the monthly interest cost, and as your regular repayments stay the same you’ll pay even more off the principal each month. It’s a guaranteed way to swing the loan pendulum in your favour.


The best part? Even small extra payments can pack a big punch to the long term cost of your loan. Take a look at how additional payments could help you save on your home loan.


Oh, and don’t forget, if your loan offers redraw, you can withdraw those extra payments. So you’ll have cash available if an unexpected bill arrives.


Offset accounts


Now, these are clever – and definitely worth getting a handle on. Offset accounts are a savings or transaction account linked to your variable rate home loan, and the value of the offset account is deducted from your home loan when loan interest is calculated.


It works like this. Let’s say you have a loan for $500,000, and you have, say, $50,000 in the linked offset account. When monthly loan interest is calculated it will be based on a loan of $450,000 ($500,000 less $50,000 in the offset account). So your spare cash is helping to reduce your interest bill and pay off the loan sooner. In the meantime your money is available at call. It’s worth stressing that offset is typically only available with variable rate home loans.


Split/combination home loan


You probably know that Australian home owners are enjoying record low rates right now. You may even be thinking about locking into a low fixed rate yourself but you’re unsure about making that sort of commitment.


Enter split loans. These let you divide your home loan between a fixed and a variable rate. It’s like taking an each way bet – you enjoy the flexibility of a variable rate with the certainty of a fixed rate. Who says you can’t have the best of both worlds?


Getting better informed about home loans before relocating to your next home is simple. Roll up your sleeves and check out our FAQs or speak with your ME Mobile Bank Manager.