Loan Features & Options100% Offset Account
A 100% offset account is a savings account linked to a loan account and operates in the same manner as an everyday transaction account (ATM, Eftpos, etc). No interest is earned on the credit balance, rather the balance of the offset account is deducted from your loan account before the interest on your home loan is calculated. Therefore less interest is charged to your loan.
Savings interest is taxable, but because your offset account balance is used instead to reduce your loan interest, no tax is payable, so it can be tax effective. An offset account can also help preserve the original balance of an investment loan as funds can be paid into the offset account rather than the investment loan account to avoid principle reduction and maximise interest deductibles.
The interest rate on your offset account is effectively the same as that applied to your loan account, which in most cases is much higher than you could earn on most at-call savings accounts, so a very popular feature if you typically have surplus savings funds on daily basis sitting in a savings account. Whilst every dollar counts, the real benefit is seen if the constant balance is at least $5000 to ensure the benefit of the offset covers any additional admininstration fee that the Lender may charge for this feature (fees vary amongst lenders)
Packages refer the bundling of multiple loan & consumer lending products under the one umbrella and are offered on home loan amounts usually greater than $100,000. The interest rate discounts are based on the standard variable rate and the higher the loan amount, the greater the discount offered. With many Lenders, a more generous than published discount may be available, however most insist that a packaged feature is taken up.
A package will usually comprise of a home loan, credit card product and savings or offset account all of which are covered by the payment of an annual fee.
- Interest rate discounts
- Discounts or reduced ongoing fees for other bundled products
- If several loan accounts, can be cheaper than paying a monthly admin fee on each account as well as ancillary products such as savings account and cards
- Might be paying for services that are not going to be used offered within the package fee thus other options may be cheaper – eg a Basic Home Loan
Most variable rate and line of credit types of loans will allow for extra repayments, so if you are planning on making more than the minimum installment each month, this is an important option to consider. Some fixed rate loans also offer the ability to pay extra but this is usually capped to a dollar amount or percentage of the amount borrowed whilst the loan remains fixed and redraw of extra repayments is not always available on fixed rate loans.
Direct salary credit
Allows a nominated portion of your salary to be paid directly into your home loan account – normally a requirement for those with salary packaging arrangements whereby part of their pre-tax income is allocated for debt reduction, or for those seeking a bit more discipline with their finances come pay day.
Loan portability/Security Substitution
Allows you to take your existing loan to a different property when you move which may avoid penalties for early repayments and/or the cost of setting up a new loan. A fee is usually charged by the Lender for changing the security for the loan and a further valuation fee may be payable for the new securty assessment.
Allows borrowers to access extra payments that have been made. Some lenders have a minimum redraw amount and may also charge a fee per redraw, but most lenders now allow this to be done online for a minimal or nil charge. Redraw is a common feature for almost all variable rate loans however more & more Lenders are allowing extra repayments and redraw for fixed rate loans these days as a competitive product offering.
This feature offers a complete holiday from repayments or a period of reduced repayments. This can be especially useful during career or vocational changes, or breaks such as maternity leave.
Puzzle Finance is committed to responsible lending practices and a fundamental part of this process is finding the loan product which is most suitable for you. As part of any consultation with Puzzle Finance, a comprehensive needs analysis will be conducted in order to discover & discuss what your financial objectives are which then assists us in working out what loan features are important to you.
Realistic responses based not just today, but what may occur down the track in 5 or 10 years time will enable the most suitable loan product & features to be presented to you.
Here are some questions to consider -
These answers will assist you in clarifying your financial goals, which will in turn help us work through the different loan options and arrive at a loan that suits you.
- Do I plan to pay off the loan as quickly as possible or just make the minimum payment required ?
- What am I like managing my finances ?
- Do I have any major expenses coming up ?
- Do I envisage any change with my employment ?
- Do I require certainty in the amount of my loan repayments or am I happy for them to fluctuate with official interest rate movements?
- Am I likely to want to draw back some of my repayments in the future ?
- If I am planning on having children, how will this affect mine or my partner's work situation?
- Am I likely to receive some form of cash windfall or bonus at any stage?
Click Here to view the Client Needs Analysis Template |