This document discusses various factors to consider when taking out a home loan or refinancing an existing loan. It notes that while most people want to pay off their home loan quickly, there are times when extra funds are needed for other purposes like renovations or investments. The document examines the costs and benefits of loans that charge ongoing fees versus those without fees. It also outlines other fees to be aware of like establishment fees, termination fees, and penalties for breaking fixed rates. Finally, it recommends obtaining a flexible loan with features like redraw facilities, offset accounts, and multiple repayment options to meet changing needs over time.

1. Your Mortgage NO.77 OCTOBER 200716
M
ost of us want to pay off
our home loan as quickly as
possible. But in life’s journey,
there are times when we need that
money – to start a family, to finally take
that overseas trip, to renovate the house,
or to buy an investment property. Or
perhaps even to start a new business.
We all know it’s not always easy getting
the extra money; often it means applying
for a new loan, having to refinance and
possibly even change lenders.
With all the changes in life, why not
take a home loan that has the flexibility to
change when your needs change?
Is there a value in paying an ongoing
home loan fee?
Some lenders offer linked loan features
for an ongoing fee as part of a package;
but always consider these carefully. What
might be good for someone else may not
always suit you.
If you plan to use the majority of the
linked financial services, and it’s cheaper
to pay the ongoing loan fee instead of a
fee per transaction – then you’re better
Disclaimer: Opinions and information provided in this
article are of the author only and does not necessarily
reflect the views of the publisher
Greg Stevens, head of franchise network, AIMS Home Loansadvisory
off. But for some people, these add-ons
or linked services are rarely used, and so
although they appear attractive, you could
end up paying more for little benefit.
Many basic home loans are available
with no ongoing fees and have attractive
interest rates.
When comparing a loan that has no
ongoing fees, calculate the fee as an
annual interest rate differential. This
can be simply done by annualising
the ongoing fee and dividing it by the
total loan amount, then multiplying
by 100 to derive the percentage. This
quick calculation will give you a better
comparison, although it doesn’t take
into account any interest compounding
effects and some other factors.
Are there any other fees
I need to consider?
Most people know about upfront fees
– establishment fees, valuation fees
and sometimes the lenders mortgage
insurance (LMI) premiums.
You should also ask about termination
fees. For example, when you exit a loan
to refinance elsewhere, will you be up
for any exit costs? For what time period
does it apply? Are there any discharge
fees? Are there any early discharge fees,
such as deferred establishment fees or
LMI premium clawbacks? Understand
the costs associated with breaking
a fixed term rate if you’re on a fixed
interest rate.
Not only are these considerations
important to help you compare and
shop around, but you don’t want any
surprises at the end when you do decide
to refinance.
Loan flexibility features to consider
A flexible and cost-effective home loan
should contain the following features:
• A redraw facility – ability to redraw
funds from the loan whenever you
want additional money, and no tax is
paid on the interest saved
• An offset account – interest earned on
the account is offset against the loan,
and no tax is paid on the interest saved
• Additional loan repayments – can
make additional payments whenever
you have surplus cash
• Multiple loan repayment methods
– such as direct debit, salary crediting,
BPAY, internet and telephone banking
• Multiple loan repayment options – can
pay principal & interest or interest-only
or fixed rate
Other features to consider are loan
splitting, portability, loan increases and
switches, loan variations and access to
an ATM card.
Should you refinance?
A refinance usually includes exit costs
on your current loan and new costs to
establish the new home loan. Do the
savings outweigh the costs to change?
Understand all the potential costs
associated with both the current loan
and the future loan.
And remember, if you get it right the
first time, you could possibly avoid having
to think about refinancing as an option.
There’s no perfect loan – but the
objective should be to obtain the most
cost-effective and flexible home loan to
meet your personal needs now and into
the future!
For more information, contact Greg Stevens, head of
franchise network, AIMS Home Loans on (02) 9217 2727
or e-mail: gregs@aims.com.au
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