A home loan is probably the biggest financial commitment you'll ever make, so make it work for you. You'll get the lot with a full featured home loan (also dubbed flexible home loan) such as an abundance of features and the ability to adjust the package as your life changes.
What does a full feature home loan have that other loans don't?
Whether you need a home loan top up to renovate your home or require home loan portability to move your old mortgage to your new house, a full featured home loan should do the trick. Weddings, babies and promotions - you just can't plan for the unexpected.
What are the key features of a fully featured home loan?
As the name suggests a fully featured home loan gives you options - and plenty of them! You can attach an offset account to your home loan, select your repayment schedule, split your loan between fixed and variable rates and make extra repayments usually without being stung with a high fee.
What should I consider when selecting a full feature home loan?
Ever heard the saying "there's no such thing as a free lunch?" While flexible home loans give you standout features, higher interest rates or monthly fees are often attached. So take the time to work out how much flexibility you really need and whether you're willing to pay more for those extra options.
*The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a home loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years, and applies only to this example. Different amounts and terms will result in different comparison rates. Full comparison rate schedules are available from lenders. Costs such as redraw fees or early repayment fees, and savings such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
**Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. 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.
While low interest rates may be pretty tempting, as a borrower you also have the option of a full feature home loan. These are jam-packed with a range of flexible options that basic home loans generally don't have, such as a mortgage offset account, extra repayments, redraw facility, home loan portability and a top up option. These features could save you big bucks in the long run so they are worth considering.
One of the major drawcards of full feature home loans is having an offset account feature. This is similar to an everyday transaction account but instead of being linked to a high interest savings account, the offset account is linked to your mortgage.
The benefit of having an offset account is that any money you have in the account is offset against the balance of your home loan daily, ultimately reducing the interest you pay on your home loan balance.
For instance, if you have a $300,000 home loan and $50,000 in an offset account, you would only pay interest on $250,000 of the loan balance. Over 25 years with a 5% interest rate this would save you $37,688 in interest.
Because interest on your home loan is calculated daily, the key to making an offset account work as hard as it can for you is to keep the balance as high as possible for the longest period possible. This means, making sure that your salary or wages are deposited into the account as well as any savings. Another popular tactic is to use your credit card for everyday purchases during the month. By using your credit card's interest free days, you keep your balance in your offset account at its highest (which reduces the interest you pay on your home loan) and then on the due date pay off the balance on your credit card in full to avoid interest charges.
While a home loan is your ticket to property ownership sooner, it's definitely a love/hate relationship as the longer you have the home loan the more interest you'll pay. But with flexible features like an extra repayments facility, you could be home loan free sooner than you think.
Most full featured home loans give borrowers the option to make extra repayments so that you can get ahead of repayments when you've got money spare.
Do extra repayments make a difference? Yes. We looked at how much you'd save by paying an extra $500 each month. By using Mozo's home loan extra repayments calculator on a $300,000 loan over 25 years with a 5% interest rate, you could shave 8 years and 9 months off the life of your home loan.
Just bear in mind that if you have a fixed rate loan as part of your home loan package, there are often limits to how much extra you can repay over the life of the fixed loan period.
Another great feature that generally comes with full feature home loans is the ability to dip into any extra repayments you've made for things like renovations, overseas holidays, family cars and more. Just keep in mind that there may be a fee attached to redraws or a minimum redraw amount.
If you need to relocate for work or decide to move to a bigger pad, with the home loan portability feature you'll save yourself the expense of application by transferring your mortgage from your old property to your new home. As life changes and your family grows, you also have the option to top up your home loan for activities like renovation.
When it comes to full feature home loans, keep in mind most come with a variable interest rate that is usually slightly higher than a basic no frills mortgage.
With a variable interest rate your home loan rate can change with the market. This means if the Reserve Bank of Australia decides to increase the official cash rate, your repayment amount will increase as lenders typically follow the RBA when it comes to rate increases. But the same is true if rates decrease, which is why variable rate loans are the most popular loan type in Australia.
Some full feature home loans will give you the choice of splitting your repayments between a fixed and variable interest rate. The benefit of splitting your home loan is that you can lock in low rates at a fixed period and then keep a portion on variable so that if rates go down you will also get a benefit, and you can tap into the money saving features (listed above) that aren't always available on a fixed rate loan.
If you'd like to run the numbers to see how much your repayments would change if there was an increase in interest rate, try Mozo's rate change calculator.
In an ideal world, all home loans would have a great interest rate, low fees and awesome features. Alas, we are living in the real world, where sifting through the mortgage pile and undertaking a successful loan or lender comparison can be a massive brain teaser. But thankfully this is where Mozo comes in. We give you an easy way to compare the rates and features on offer from the different full feature home loans on the market from banks, mutuals and non-bank lenders, by simply using Mozo's home loan comparison tool.
If you are thinking of switching from your existing loan to a full feature home loan, try our Switch & Save Calculator. By plugging in some basic information about your existing loan and property, we'll give you a full listing of loans that will save you the most by switching.
Our comprehensive home loan tables allow you to compare full feature home loans from the familiar faces of the big bank providers like NAB, ANZ, Westpac and the Commonwealth Bank to the smaller players like Australia's credit unions, mutuals and specialist online lenders.
And if you're finding it difficult to compare full feature mortgages and choose the one that is right for you, our home loan reviews hub has thousands of reviews from real customers. Comparing full featured home loans has never been easier.
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