What is a flexible home loan and should you consider one?

Not every homeowner wants a “no-frills” basic home loan. Some borrowers may prioritise convenience through helpful features that offer greater flexibility – but these may come with a catch.

Flexible home loans can offer you more than just your standard monthly mortgage repayments, so if you are looking for flexibility to match your ever-changing lifestyle, let’s explore the benefits and risks of a flexible home loan.

What is a flexible home loan?

Flexible home loans are another way of describing a mortgage that offers helpful features. These can include:

• Being able to make extra repayments without penalty
• The choice to split your repayments between fixed and variable rates
• An offset account
• A redraw facility

Many first home buyers may opt for a basic home loan at the start of their buying journey as they are typically more affordable. By having fewer extras, like an offset account, a home loan lender may charge lower fees, like an annual fee, or a lower interest rate.

After a few years of repaying a mortgage, some homeowners may be in a better financial position to upgrade their mortgage and could consider refinancing to one that offers more flexibility.

What are some of the features offered with flexible home loans?

The types of features that may be offered by a flexible home loan may include some or all of the following:

• Make repayments when and how you choose
• Enjoy the benefits of both fixed and variable rates by splitting your loan
• Co-own a property while still retaining control of your individual finances
• Redraw facilities
• Pay above your minimum repayment without being penalised, so you can pay off your loan faster
• Switch loan types between principal and interest repayments or between variable and fixed rates

What are the benefits and risks of a flexible home loan?

As you can see, there are a multitude of features that a homeowner may be able to utilise with a flexible home loan. Each feature may offer its own pros and cons but are generally designed to be a helpful financial tool.

For example, any funds you deposit into an offset account work to reduce or ‘offset’ the interest charged on your mortgage. So, just by saving money in your offset account, you may find that your mortgage repayments are much lower.

However, it’s worth keeping in mind that home loans offering flexibility typically come with higher fees and interest rates than their basic counterparts. This may mean a higher upfront fee, like an application fee, or a higher annual fee to help pay for the features.

Flexible home loans are also typically variable home loans, so a borrower will want to be sure that this home loan repayment type best suits their budget and financial goals. If you’re prioritising a fixed rate home loan it’s important to note that some lenders may offer you features but, generally speaking, most will not.

Whether you’re looking for your first home loan or considering refinancing to something offering more flexibility, it’s important to compare more than just the features being offered by a lender. Look at the interest rates, fees, and home loan repayment types, such as whether the rate is variable or fixed, before applying.

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