If you’re still in the early part of your home buying journey, you are probably still weighing up different kinds of home loans. We get it - there is a lot of choice out there and sometimes it can be overwhelming. Fixed or variable? 20 year, 25 year or 30 year? Keep reading and let BFG take you through some of the most common features of a home loan that may work for you.
This is a big one. When borrowers come into some extra money, or just decide they would like to devote energy to paying off their loan faster, they may go to make extra repayments on their home loan. Unfortunately, especially with fixed rate home loans, lenders often do not allow extra repayments. Rather, this is more common with variable rate loans.
So, if your budget will always invite the potential for extra cash to be laying around, you might be considering making extra repayments on your loan. Here at BFG, we can match your requirements to the ideal lender for you so that you do not miss out on the opportunity to become debt free faster. We’re always only a phone call or email away. Don’t hesitate to contact us with any queries regarding making extra repayments on your loan, or any other queries you may have - that’s what we’re here for.
Loan splitting allows you to split up your repayments into multiple loan accounts. Why would this be beneficial? Well, for example, you may want some of your loan in a variable rate account, so you are able to make extra repayments but you don’t take on the full risk of your interest rate rising.
Another benefit of splitting up your home loan is the ability to keep track of loans used for another purpose, e.g. buying shares and using your property as security. Opening a separate account for this purpose allows you to show the ATO which part of your home loan is tax deductible.
To put it simply, you can think of having a repayment holiday option within your home loan as a type of insurance policy. Lenders know that life happens and it often happens quickly - and when it does, your financial situation may also change in a hurry.
So, if you’ve just had a new baby, or another major life event, and you need to reduce or pause your repayments for a set period of time, a repayment holiday could come in handy indeed.
The length of repayment holidays varies by lender and home loan product, but is typically offered for six to 12 months.
Home loan redraw
Home loan redraw is linked to making extra repayments. Think of it kind of like another savings account - you cover your repayments and then add some extra repayments when you can. So, now it’s there for a rainy day or a big ticket item you might be saving for - like a nice six week Europe trip (if we can ever travel again) or a shiny new car.
Keep in mind, similar to making extra repayments in the first place, home loan redraw is not available on all loans, or may attract extra fees for the privilege. It’s more commonly available as a feature of a variable rate home loan and not typically offered in fixed rate home loans.
Interest-only home loan repayments
Interest-only repayments is a concept typically advantageous to investors looking to maximise their tax deductions but can be useful for owner-occupiers as well. As the name suggests, interest-only repayments only service the interest on a home loan, not the principal (the amount you borrow, not including interest charged by the lender).
This means you are not servicing the actual amount you borrowed but it does allow you to reduce your payments for a set length of time (for example, the first five years of your home loan). You may be interested in this option if you’re planning on having a baby or there is something else coming up that will affect your income. Perhaps you’re still studying and need to pay for tuition or you’re just starting out in your career and your salary will rise over time.
Individual circumstances will vary, but always remember that taking up interest-only repayments will increase the total amount of interest you pay on your home loan.
Disclaimer: The information provided above is general in nature and does not constitute financial advice. Please speak to us for recommendations on your individual circumstances and requirements.