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Home Loan Providers Making It Easy To Get Ahead

Looking to get ahead of your home loan interest repayments? Canstar has identified four useful features that can save you thousands over the life of your loan and can help you pay it off faster.

Buying a home is likely to be one of the biggest purchases you’ll ever make, possibly costing you hundreds of thousands of dollars and sometimes taking decades to pay off.

A quick calculation from our researchers shows a $300,000 home loan over 30 years with a comparison rate of 4.45% will lead to total repayments of approximately $544,000 – that’s $244,000 in interest! Up this rate by 2.00% and you could end up paying $379,000 interest!

It goes without saying that this is a lot of money, and  there is no need to pay more than you should. When it comes to home loans, there are a few common and not so common features and benefits you can look for to save money over the life of your loan and get ahead of your interest repayments.

You can use the following four things to potentially save thousands of dollars in interest repayments:

  1. Offset accounts
  2. Redraw facilities
  3. Extra repayments
  4. Loyalty discounts

We’ll discuss what these features are, how much they can save you and how many providers offer them at the moment.

But first, let’s look at the current interest rates on home loans.

Compare Home Loans Interest Rates

Current interest rates on home loans

Canstar Research has compiled the current minimum, maximum and average interest rates on the market for residential and investment principal and interest home loans, compared to what they were during our last ratings period six months ago.

Residential home loans

September 2017

Residential P&I Home Loan Market – Snapshot (4/09/2017)
  Basic Variable Standard Variable 1 Year Fixed 2 Year Fixed 3 Year Fixed 4 Year Fixed 5 Year Fixed
Average 4.27% 4.47% 4.08% 4.05% 4.10% 4.46% 4.53%
Min 3.65% 3.44% 3.49% 3.64% 3.69% 3.99% 3.99%
Max 5.49% 5.73% 5.04% 4.74% 4.84% 4.99% 5.14%

March 2017

Residential P&I Home Loan Market – Snapshot (20/03/2017)
  Basic Variable Standard Variable 1 Year Fixed 2 Year Fixed 3 Year Fixed 4 Year Fixed 5 Year Fixed
Average 4.25% 4.47% 4.17% 4.08% 4.15% 4.51% 4.57%
Min 3.69% 3.39% 3.69% 3.59% 3.59% 3.75% 4.04%
Max 5.37% 5.73% 5.04% 4.95% 5.05% 4.94% 5.14%
Source: www.canstar.com.au. The search results do not include all home loan providers, and may not include all features relevant to you. Based on residential loans available for $350,000, 80% LVR and principal & interest repayments.

Investment home loans

September 2017

Investment P&I Home Loan Market – Snapshot (4/09/2017)
  Basic Variable Standard Variable 1 Year Fixed 2 Year Fixed 3 Year Fixed 4 Year Fixed 5 Year Fixed
Average 4.73% 4.92% 4.41% 4.37% 4.45% 4.76% 4.82%
Min 4.09% 3.74% 3.94% 3.85% 3.99% 4.42% 4.39%
Max 6.01% 6.38% 5.49% 5.69% 5.89% 5.19% 6.19%
Source: www.canstar.com.au. The search results do not include all home loan providers, and may not include all features relevant to you. Based on investment loans available for $350,000, 80% LVR and principal & interest repayments.

March 2017

Investment P&I Home Loan Market – Snapshot (20/03/2017)
  Basic Variable Standard Variable 1 Year Fixed 2 Year Fixed 3 Year Fixed 4 Year Fixed 5 Year Fixed
Average 4.50% 4.72% 4.37% 4.29% 4.34% 4.73% 4.74%
Min 3.69% 3.67% 3.69% 3.70% 3.69% 3.75% 4.10%
Max 5.65% 5.87% 5.04% 5.09% 5.09% 5.06% 5.24%
Source: www.canstar.com.au. The search results do not include all home loan providers, and may not include all features relevant to you. Based on investment loans available for $350,000, 80% LVR and principal & interest repayments.

Offset account

Offset accounts are popular among home loan borrowers, as they allow the money you keep in your everyday transaction account to offset the daily interest charged against your loan balance, resulting in lower interest being applied to the loan at the end of the month.

Say you have already paid $100,000 on a $350,000 home loan. This would result in you paying interest on the remaining $250,000. But, if you had a balance of $50,000 in a linked offset account (say you were saving for a new car), then this balance would offset the loan amount that you would be charged interest on to $200,000 – resulting in a monthly interest saving of approximately $185 on a loan with an interest rate of 4.45%.

At the time of writing, offset accounts are available from 89 of the 94 home loan providers we research and rate – that’s 93.7% of providers. However, it is important to note that not all loans offered from these providers have the ability to link the loan to an offset account, with this functionality often coming at a cost (such as a slightly higher interest rate). So it is always important to weigh up the pros and cons of each product when looking for a home loan, and make sure that the one you choose suits your individual needs.

See our comparison table below which features a snapshot of the current 5-star rated home loans currently available, with links direct to the providers website. Please note that this table has been generated based on an established buyer in NSW seeking a $600,000 loan.

Redraw facility

A redraw facility is a feature that enables you to withdraw extra money that you have already contributed to pay off the loan.

Using the example above, say you weren’t saving for a big purchase, but you were using your additional funds to pay off your loan quicker and were now $50,000 in front of your scheduled repayments. Having the ability to redraw these additional funds at little (or no) cost could be beneficial down the line, especially if unexpected expenses arise, or if you do decide to buy that new car.

All 94 institutions rated in Canstar’s Home Loan Star Ratings  had at least one product that allowed redrawing of additional funds paid into the loan. If you have a fixed home loan, however, then the redraw may only be available at the end of the fixed rate period. Once again, it is important to investigate the unique features of any home loan, before you commit.

Extra repayments

Another great way of building a buffer into your home loan is to keep your monthly repayments the same, but make additional repayments along the way to pay off the loan more quickly. To give an example of what we mean by this, say you have the following loan:

  • Loan Amount: $350,000
  • Repayment Frequency: Monthly
  • Comparison Rate: 4.27%
  • Loan Term: 25 years
  • Extra repayment (monthly): $200/month
  • Extra repayments start after: 1 year

Using our extra repayments calculator, paying $200 extra per month after 1 year on a standard variable home loan at 4.27% could save you around $35,000 over the course of your loan, and slash three years and eight months off the life of the loan too.

Use Canstar’s Home Loan Extra Repayments Calculator

Of course, you can save even more than this if you also deposit some extra money into an offset account, as doing so will reduce the amount you need to pay interest on. Of the 91 rated providers that offer , 81 of them have at least one that allows the holder to make extra repayments – a total of 89%.

Loyalty discounts

The final feature that could assist in repaying your loan quicker is a loyalty discount. Given that the home loan market is more competitive now than ever, some banks and lenders offer loyalty discounts to encourage borrowers to keep their existing loan, rather than switching.

Loyalty discounts, as the name suggests, sees a discount applied after a certain period of time. For example, a loan may receive a 0.50% discount off the interest rate that is charged after the loan has been in existence for five years.

Build a buffer on your home loan

The following percentage of home loan providers offer at least one of these benefits:

Feature/benefit % of providers
Offset accounts 93.7%
Redraw facilities 100%
Extra repayments 89%
Loyalty discounts 2.13%

As you can see, the number of institutions that offer features that allow you to pay off your home loan quicker is very high for all categories except for loyalty discounts.

It looks as if lenders are making it easier for you to build a buffer on your home loan by offering more ways for you to pay off your loan quicker. And with interest rates at an all-time low, it is a good idea to get ahead of your repayment obligations in case your circumstances change.

With the high number of providers offering these features, you’re spoiled for choice, so why not compare with Canstar to find a home loan that’s right for you.

Compare Home Loans with Canstar

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