5 great home loan features – and the sneaky reasons lenders offer them

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Everyone knows about home loan interest rates, especially since they’re quite high at the moment. But if you’re just starting your property-buying journey, what other features should you consider in a mortgage? What are the pros and cons? And why does your lender offer them in the first place?

Let’s review the top five features when comparing home loans.

Fixed vs. variable rates

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Firstly, let’s compare. What’s the difference between a fixed and variable interest rate?

A fixed rate home loan has a set interest rate for a certain period, called your ‘fixed term’. Your monthly repayments will be the same during your term because your interest rate won’t change. Terms usually last 1 to 5 years, though some lenders offer 7-year fixed options.

Variable home loans change at the discretion of your lender and are sensitive to cash rate decisions from the Reserve Bank of Australia. Some years your variable interest rate (and therefore your repayments) might be relatively low, while others may be higher. 

In short, fixed rates stay the same while variable rates…vary.

Both types of home loans have their pros and cons. For instance:

  • Fixed mortgages mean predictable repayments and thus financial certainty, but–
  • Variable mortgages mean you can drop onto a lower rate, and often come with interest-saving features like offset accounts (see below).

It is relatively easier to refinance a variable mortgage, too. Breaking a fixed mortgage early usually requires you to fork out a hefty break fee. 

Comparing the rates and features between fixed and variable mortgages can help you decide which option works best for you. Either way, your lender won’t be too fussed: variable rates can change to suit their business needs, while fixed rates guarantee a steady revenue. 

DID YOU KNOW? In the USA and UK, buyers can fix their mortgages for up to 30 years. We can’t in Australia because our government entities don’t back mortgages. Hence lenders aren’t willing to risk having such an extended loan term on their balance sheets.

Offset account

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An offset account is a savings account attached to your home loan. Since many lenders are banks, they want to maximise the business they can get from you. 

So what’s good about an offset? In short: it saves you interest. Your bank subtracts the money in your offset from your full mortgage (i.e. your principal), so you only pay interest on the remainder.

For example:

  • If you have a $500,000 mortgage,
  • And $250,000 in an offset account,
  • You only pay interest on $250,000 of your home loan. 

Offsets are more common in variable home loans, especially packaged loans, though some fixed loans will have them. You may be charged higher fees for opting for a loan with an offset account, too, and keep in mind it doesn’t reduce the amount you pay on your principal balance. A $500,000 loan is still a $500,000 loan.

However, you can use your offset account like a regular savings account: stashing funds for a rainy day, paying bills, or saving for that sweet European adventure. So if you’re in the market for a savings account and don’t mind banking with your lender, it can make a smart option.

Free extra repayments

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Got some extra cash, like a work bonus or a tax refund? Some home loans offer free extra repayments, meaning you could put that check towards your mortgage and pay it off sooner. 

This feature isn’t a standard because it affects how lenders make money. They don’t make money off you repaying your principal (i.e. the size of the original loan you take out). They make money off the interest you repay, and they like consistency. 

The longer your home loan lasts, the more interest a lender can charge you. By paying off your loan sooner (without paying extra fees), you lessen the number of repayments you have to make and decrease the amount of interest you pay over time. 

As a bonus, this makes free extra repayments a potential interest-saving hack for the savvy borrower. 

Keep in mind: some lenders may offer extra repayments, but charge a fee or cap the amount or number of repayments you can make. Plus, what happens if you need the money later? That’s where a redraw comes in.

Redraw facility

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Want to get back your extra repayment? Look for a home loan redraw, or redraw facility. 

Think of it as a less flexible offset account: if you put $7,000 extra into your home loan to save on interest, but remember you owe your partner a birthday gift, you can dip back into that $7,000 through your redraw. 

There are some caveats to consider, however. Like an offset account, most redraw facilities are only available with variable home loans. Your redraw may also come with fees, extra paperwork (like an activation form), and limits to how much and how often you can redraw. Theoretically, a lender doesn’t want you taking back your cash too much, not when it could be their cash, too!

However, there are still some pros. If you opt for free extra repayments, a redraw can give you a little peace of mind and usually comes cheaper than a personal loan.

Flexible repayment options

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Some lenders offer flexible repayment schedules for certain types of home loans. Most mortgages are repaid monthly, but some can be paid weekly or fortnightly. How does payment frequency affect the cost of your mortgage?

There are 52 weeks and 26 fortnights in a year. By paying smaller amounts more frequently, you could actually pay down your loan faster. As with free extra repayments, this ultimately saves you interest because you’ve paid off bigger chunks of your principal in a shorter time. Interest is also calculated daily, so fewer days between payments means less interest. 

The maths can make or break this feature, however. Lenders calculate weekly/fortnightly payments differently, so if your fortnightly repayments are half your monthly ones, you save interest, but if they’re any less then you don’t. Check with your lender to see how they set payment schedules – you’ll want one that benefits you, not just them.

Compare home loans – and their features – in the table below.

Home loan comparisons on Mozo

Mozo may receive payment if you click the products below. We don’t compare the entire market, but you can search our database of 473 home loans.
Last updated 19 June 2024 Important disclosures and comparison rate warning*
  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Basic Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

  • Offset Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.39 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Discount Variable Home Loan

    • Owner Occupier
    • LVR<70%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    6.01 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    A low rate home loan for owner-occupiers packed with great features including unlimited extra repayments, free online redraw, no application or monthly admin fees. Rate will vary depending on LVR. Winner of a Mozo Experts Choice 2024 Low Cost Home Loan Award^

  • Variable Home Loan 90

    • Principal and Interest
    • LVR <90%
    Interest rate
    6.04 % p.a.
    Variable
    Comparison rate
    6.06 % p.a.
    Initial monthly repayment
    $3,011
    Go to site

    Affordable home loan rate for buyers or refinancers. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 10% deposit required.

  • Fixed Rate Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <80%
    Interest rate
    6.09 % p.a.
    Fixed 3 years
    Comparison rate
    6.15 % p.a.
    Initial monthly repayment
    $3,027

    Additional repayments of up to $10K per fixed year. Interest rate discounts available. Waiver of $499 application fee when combined with an Orange Advantage Home Loan.

  • The Better Home Loan Special Offer

    • Owner Occupier
    • Principal & Interest
    • LVR<80%
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.14 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a variable rate home loan with a bunch of features from Police Credit Union. Make extra repayments at any time without penalty. No monthly, annual or upfront fees. Free online redraw. Minimum 20% deposit. Qualifying criteria applies. Minimum loan amount is 200K. For new customers only. Mozo Experts Choice Home Lender Credit Union of the Year 2023.

  • Basic Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

  • Mortgage Simplifier

    • LVR<80%
    • Owner Occupier
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.17 % p.a.
    Initial monthly repayment
    $3,043

    Get a competitive variable rate with ING’s Mortgage Simplifier. Free extra repayments, no monthly or annual fees. Freedom to make free extra repayments or redraws.

  • Offset Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.39 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.

  • Basic Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR<70%
    Interest rate
    6.25 % p.a.
    Fixed 3 years
    Comparison rate
    6.20 % p.a.
    Initial monthly repayment
    $3,079
    Go to site

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

  • Fixed Rate

    • Owner Occupier
    • Principal & Interest
    • <80% LVR
    Interest rate
    6.59 % p.a.
    Fixed 3 years
    Comparison rate
    7.06 % p.a.
    Initial monthly repayment
    $3,190

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

image of houses

Need help with refinancing?

You might have questions that need personal answers. We’ve teamed up with the mortgage brokers at Lendi to get you the answers you need, and a home loan deal you deserve.

Learn more

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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