Organising finance for your home is one of the most important financial decisions many people ever make so it’s vital to consider all the options before choosing the loan that will work for you. Don’t take anything for granted and stay informed so you can ask all the right questions. If you put aside some time for research you are much more likely to come to the correct decision as to what product is best suited to your needs.
What are flexible home loans?
Unlike fixed rate loans, where the rate of interest doesn’t change, flexible home loans have variable rates that fluctuate according to the cash rate and market. These loans also provide a range of features that allow them to be customised to suit your personal circumstances, thereby making them flexible.
How do flexible home loans compare to other similar products?
When you compare home loans you need to carefully consider the features that come with them. In general terms, the more features included with your home loan the more flexible it is likely to be. Check also that the interest rates and the repayment style will suit your circumstances. Look at variable, fixed and combined interest rates as well as how frequently your repayments are going to be due and whether you can increase or decrease these.
Payments will either be due weekly, fortnightly or monthly and it is useful to find a loan that also allows fee-free extra repayments. It’s important to make a judgement based on what is going to work best and be most advantageous for you personally.
What are the main features?
There are some main features of flexible home loans that may make them a good choice for you.
- Repayments will be among your chief concerns so look out for flexible home loans that offer you a temporary break from repayments (repayment holiday); flexible terms (weekly, fortnightly or monthly perhaps); and the option to increase payments when this suits (although always check that you won’t incur penalties if you pay off your home loan early).
- Redraw refers to the option to reclaim funds from any additional repayment money you have made previously. Always check whether your lender makes a charge for this facility or sets an amount to access as a minimum.
- Offset accounts can also be a useful feature of a flexible loan as it allows you to combine your transaction account spending with your mortgage and offset this against the principal amount owing on your loan.
What are the risks and rewards?
Finally, you need to make an honest appraisal of the pros and cons of choosing a flexible home loan. On the plus side, you can benefit from the flexibility of both making and redrawing additional payments. This means your loan can adapt to your personal cash flow, which may also benefit from a repayment holiday. Remember that to achieve this flexibility you run the risk of paying higher annual fees and repayments, which may also be subject to changes in interest rates.