Loan Features

There is a lot to consider when you are buying a home and the right type of loan with the right features will support you and your family’s lifestyle in the long term. Aspects to consider include:

Loan Features

• Principal & Interest
• Interest Only
• Annual Packages
• 100% Offset
• Redraw
• Pre-Approval

Principal and Interest Home Loan
Principal is the actual money you have borrowed and interest is the fee lenders charge you whilst you owe this money. A Principal and Interest home loan (P&I) is simply one which includes an allocation for repayment of the principal together with the interest charge in your regular minimum repayment.

Your loan is repaid with each instalment which reduces interest costs and increases the equity in your property. Minimum repayments are higher as they include the interest charge together with an allocation for principal.

Interest-Only Home Loan
Repayment of the principal is deferred for an agreed period (usually 1-5 years or up to 15 years with some lenders) and during this time you only pay the interest charges which results in a lower minimum payment as there is no allocation for principal.

At the end of the interest only period you must start making Principal and Interest Repayments over the remaining term of the loan, although some lenders will also allow you to extend the interest only period for a further term.

This option is often used as part of a negative gearing strategy for investment property as it preserves the original amount borrowed, thus maximizing the interest charges and resultant interest deduction to offset the income generated from the property, however you should seek independent financial advice as to whether this option suits your individual situation & investment strategy.

An offset account is usually paired in this instance – please see explanation of ‘100% offset account’ for more details.

Annual Packages
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.

100% 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 administration fee that the Lender may charge for this feature (fees vary amongst lenders)

Redraw facility
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.

Pre-Approval
If you’re looking at purchasing a property at auction, it’s strongly recommended that you allow Cube Finance Group to obtain an Approval in Principle, also known as a Pre-Approval in order that you have some certainty with being able to obtain finance before committing to a purchase.

Once we have discussed your financial objectives and requirements, Cube Finance Group will request certain proof documents and complete a finance submission for assessment by the selected lender, who in turn will complete a preliminary assessment, confirm all information provided, undertake a credit check and in some cases, seek an indicative approval from a mortgage insurance provider where required.

A pre-approval is by no means a guarantee of finance approval and should not be relied upon – its more an indication that you meet the lending criteria of the given lender however Cube Finance Group can assist in this area by obtaining a more meaningful response from the Lender that can be relied upon in order to take that next step in obtaining a property.

A pre-approval generally lasts for between 60-90 days from date of issue and will be normally be subject to a satisfactory security being offered, a satisfactory valuation and fully signed contract of sale. These and any other requirements will be clearly discussed with you before you commit to a purchase on auction day.