With the Bank of Melbourne Basic Home Loan, you’ll get a competitive variable interest rate and no ongoing fees. The loan may suit an owner-occupier or investor who wants a no-frills, low-cost mortgage.
Investors in particular may be attracted by the generous time period allowed for interest only repayments option – up to 15 years for investors, compared to 5 years for people who intend to live in the property. Investors who opt to fix part of their loan may also quality for a discount on the Bank of Melbourne fixed rates if they choose to pay interest in advance.
The loan offers flexible features such as the ability to make unlimited extra repayments and to split your loan by fixing part of your loan while keeping the rest variable. Once up and running, there are no ongoing monthly fees – but other fees may apply such as redraw, split or fixing fees, so you’ll need to do a full review of the pros and cons on this loan.
Review of the highlights
Owner-occupiers or investors can apply for the Bank of Melbourne Basic Home Loan and one of the main attractions is that the loan has a low upfront fee and no ongoing fees. Borrowers can choose their repayment frequency, whether weekly, fortnightly or monthly. You can take the loan for up to 30 years, this can include up to five years of interest only repayments on owner-occupier loans.
For investors, an added bonus on this loan is that you can repay interest only instalments for up to 15 years, which is longer than many lenders offer. This will allow many investors to get into the property market for a minimal outlay and potentially maximise their tax benefits – though the danger is that interest costs can accumulate if this feature is not used wisely. During the interest only period, your repayments will only have to cover the interest and you won’t be paying off your debt, so keep in mind your repayments will be higher once this ends and you need to start paying down your loan as well as paying the interest.
Borrowers nevertheless have the flexibility to make additional repayments at any time on the loan, without an early repayment fee. That feature may help you to save substantially on interest costs. Once you make extra repayments, this money will still be available if you need it in future. You can access it by using the redraw facility. Keep in mind to access this for free, use phone or internet banking, as a cost is incurred per redraw made in the branch.
Lenders mortgage insurance is generally payable on loans exceeding 80 per cent of the value of your property. However, with the Family Pledge option offered by Bank of Melbourne, you can reduce or even avoid paying lenders mortgage insurance when a parent or family member guarantees part of your home loan by using his or her own home’s equity to provide additional security for a portion of your loan amount. That option could well serve first home buyers or investors keen to crack into the property market.
You can also reduce or pause your home loan repayments for three to 12 months when you have a legitimate period of leave from the workforce, for example during maternity leave – but a fee is involved if you request such a pause.
You can split part of your variable loan with a fixed rate loan. A split loan gives you the flexibility of a variable interest rate loan and the security of a fixed interest rate loan. By having a portion of your loan fixed and the remaining portion variable, you can partially protect yourself against rising interest rates. Though, you do stand to miss out on any rate cuts on the fixed portion of the loan. You can use the flexibility of the variable portion to make extra repayments, which may not otherwise be available.
Bank of Melbourne fixed terms are available up to five years, with a choice of principal and interest or interest only repayments. Borrowers can make additional repayments, capped an at agreed amount, each year on fixed rate loans. You can access extra repayments made (up to a limit each year), though once again, redraw fees may apply if made in a branch, but you can avoid this fee making online redraws.
On investment loans, if you choose to pay interest in advance, you can take advantage of a fairly generous discount on the advertised fixed interest rate for the interest in advance period. But there’s a catch: the discount will apply only if the interest in advance amount is deducted from a Bank of Melbourne transaction account.
Review of the lowlights
The main downside on the Bank of Melbourne Basic Home Loan is the cost of any added ‘extras’. Once you decide that you want to fix an interest rate, or split your loan, or even apply for a repayments pause, the fees are moderate to high.
A fee applies each time you split your home loan. If you want to split with a fixed rate loan and guarantee a fixed rate in the time prior to settlement, a rate lock fee applies and it can amount to a lot.
Another potentially big fee applies if you apply for a repayments pause, whether or not it’s granted. A discharge fee also applies, and by market standards is moderately high. Bank of Melbourne will also charge you to increase your home loan, again more than some other lenders charge.
Moreover, redraws are not always free. A fee per redraw applies if you do it in a branch. However, there is some flexibility, as this fee will not apply if you make a redraws online or over the phone. So it may not be a big bother to you.
Fixed loan terms run from one to five years, so if you’re looking for a longer term because you like the certainty of knowing your loan repayments, Bank of Melbourne doesn’t offer them. Moreover, the cap on extra repayments allowed may be enough for many borrowers, but you should be aware that some other bank lenders allow greater repayments on fixed loans without extra charges applying.
Finally, there is no offset account available on variable loans, which may be off-putting to some borrowers as this is a popular home loan feature.
The verdict after review
Like other lenders who offer ‘basic’ branded home loans the Bank of Melbourne Basic Home Loan is a simple loan with a relatively-low rate, minimal upfront fee, no ongoing fees and enough features to keep many borrowers happy. Despite the lack of an offset account on this loan, if you don’t have too much cash sitting around, then this isn’t a big drawback. There are other ways you can reduce interest on your loan such as making free extra repayments as often as you can without any charge.
For investors, the loan may have particular appeal given generous interest only repayment periods and discounts applied to the prepayment of interest.
And if you are prepared to pay the fees associated with the extras, the Bank of Melbourne Basic Home Loan does offer some flexible features typically found on more sophisticated home loans, such as repayments pause or the family pledge option to reduce lenders mortgage insurance payable.
Bank of Melbourne does allow you to split your loan between fixed and variable portions to give you more flexibility and control over your loan at a small cost. The restrictions on fixed loan periods, however, and a high rate-lock fee must be taken into account. The split loan fee and possible redraw fees may also put some people off, though they aren’t very high. So, all up, it’s worth reviewing the numbers and checking out whether this basic loan will suit your circumstances. There are some decent features on the loan which make it worthy of consideration for most property buyers.
Note: This review provides general information about the above home loan. Any views expressed are the author’s own. It is not intended to be a recommendation of a particular product. To the extent that this commentary may constitute general advice, this advice is of a general nature and does not take into account your individual objectives, financial circumstances or needs. We recommend that before you make any financial decision you seek professional advice from a suitably qualified adviser and read the PDS. Read more about our important disclosures here.