Competitive loans

The features of a loan that make it competitive are generally in the eye of the beholder, based on what’s important to your situation and circumstances. Select from the list of features below that are important to you and then use these to compare loans.

 

Interest rate

The interest rate would normally be at the top of the list for a competitive loan. The interest rate is important but so too is how you use and how often you pay extra into your loan. Obviously, the lower the rate the more likely your interest bill will be lower.

 

Entry fees

Entry fees can sometimes be as high as $1,000 or more. Sometimes lenders will have a promotion and offer a nil application fee, but then you may have to pay the lender legal fees and the valuation yourself. If you’ve paid nil application fees, the lender may charge you the equivalent of the fee if you exit the loan in a specified time.

 

Exit fees

Exit fees are designed to encourage a borrower to stay in the loan for a specified period usually 1 to 4 years and sometimes up to 5 years. You have to be wary of products with an exit fee noted as a percentage. For instance if the exit fee is 1% of the initial loan amount for 5 years and you’ve take out a $350,000 loan, then the exit fee alone will be $3,500, even if you exit the loan at 4 years 11 months and now have a balance of just $10,000.

 

Discharge fees

There are also discharge fees payable to the lender when you exit a loan. A discharge fee is to cover the preparation of the legal documents and the lenders legal representative’s attendance at settlement. The fee is usually from $250 to $700.
If you have a number of loan splits, then you may be charged a separate discharge fee for each loan split. So if you have 3 loan splits, and the discharge fee is $450 per spilt, you’ll have to pay $1,350 just in discharge fees.

 

Ongoing fees

Ongoing fees are generally charged for offset accounts, fixed rate loans and some Standard Variable Rate loans and Professional Packages and tend to range from $5 to $25 per month.

 

Package fees

Professional Pack fees are usually annual fees and tend to range from $200 to $400 per annum. They are debited to your account on the anniversary of when you settled the loan. You need to pay this type of fee in advance.

 

Redraw facility

A redraw facility allows you to access the extra payment you’ve made. You need to be aware that some lenders will entice borrowers with a ‘competitive’ rate, but then charge you up to $25 each time you do an internet redraw. So, if you just do one redraw per week, that’s $1,300 per year extra in fees that you’ll pay!

 

100% Offset account

An offset account is a separate account (a transaction account) that’s attached to the loan account. The balance of the offset account is deducted from the balance owing on the loan account for the purposes of charging interest. So, if you have a home loan of $200,000 and you have $10,000 in the offset account, interest will be charged on $190,000 not $200,000. Remember that interest is calculated daily so the longer you have your savings in an offset account the lower your effective home loan and the less amount of interest you’ll ultimately pay. With most offset accounts you’ll be charged a monthly fee, so you need to determine if the amount of savings that you get from the offset account will more than cover the interest saved. Just note that some products don’t have a 100% offset and others may require a minimum balance in the offset account before the offset applies.

 

Loan portability

This facility allows you to take an existing loan to a different property when you move. This could be useful if your loan has high exit fees you don’t want to pay. However, the lender has to be satisfied that the new property is a suitable security and there may be a additional fees for valuation and new loan document fees.

 

Additional repayments

The ability to make additional repayments without penalty is important if you want to pay down your loan and save on the interest bill. Additional repayments are when you make repayments above the standard repayments the lender requires. For instance, a 30 year loan of $200,000 with a rate of 6% (Principal & Interest) requires a monthly repayment of $1,199.10. If you want to pay the loan off quickly, you might make monthly repayments of $2,000.00. This repayment includes an extra repayment of $800.90

 

Repayment holiday

This feature allows the borrower a complete (or partial) holiday from repayments for a specified period or allows a period of reduced repayments. This can be very useful during a career change or situations such as illness or maternity leave.

 

Switch fee

A switch fee allows a borrower to switch products within the lenders product suite. A switch fee is charged each time you make a product switch. The fee is usually from $250 to $350.