Oct 13, 2017 1:23:08 PM

Making your home loan work for you

Topics: Buying, LVR, Mortgage, new zealand real estate, First Home Buyer, Second Home, house sales, mortgage ready, property sales, mortgage stress, low equity margin, LEM, loan to value ratio 0

When it comes to choosing a home loan, interest rate is not the only thing to consider. Loan features – like the ability to make extra repayments, a line of credit, an off-set account, or repayment holidays – are just as important. To help you understand what features you could be offered by your lender, we’ve outlined some of the more popular options.

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Making extra repayments

Being able to make extra repayments at any time during the life of your home loan is an important feature. Any extra cash paid into your home loan – like an annual bonus, a windfall, or a tax return – could end up saving you thousands of dollars in interest over the life of your loan.

It goes without saying that the more often you make extra repayments, the better – for example, if your mortgage repayments are calculated monthly, consider paying fortnightly instead as you’ll end up paying an additional month’s worth of repayments each year. And the sooner you’re able to start making extra repayments, the greater the benefit to you in terms of time and money shaved off your overall loan amount.

An off-set account

One of the simplest ways to reduce the interest payable on your home loan, is to set up an off-set account. An off-set account is a bank account linked to your home loan and used as you would any other savings or transaction account. The difference is your balance in this account is off-set against your total mortgage and interest is only charged on the difference.

For example: If you had a mortgage of $450,000 and your off-set account balance was $20,000, interest would only be charged on the difference i.e. $430,000.

Some lenders calculate the off-set amount daily while others do this on a monthly basis, so it’s worth comparing lenders if this is something you think would work for you. You can have your salary paid into your off-set account, set up automatic payments to be paid from this account, and use it to make everyday purchases using a debit card. 

A line of credit

If you have a large amount of equity in your property, you may be offered a line of credit. This means that your lender approves an amount secured against the equity in your property that you can draw down when you need it – say for home renovations or a family holiday. 

Typically, you’ll only pay interest – charged at a variable rate – on the amount you draw down rather than the total approved amount. A line of credit is a useful feature to have, but probably better suited to borrowers who are careful at managing their finances and won’t be tempted into overspending each month.

Repayment holiday

Some lenders will allow you to make changes to or even take a break from mortgage repayments. This happens when borrowers have a change in financial circumstances and need to make a change to their mortgage repayments. In most cases, you’ll need to have already made extra repayments and built up a bit of a buffer before approaching your lender about a repayment holiday.

What features work best for you?

As a Mortgage Express adviser, we understand that navigating through the numerous home loan features on offer by lenders can be complicated. We’d like to help you make an informed decision about which features are most important to you. Get in touch with us if you’d like guidance on your home loan features.






While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.

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