Innovative Home Loan Features To Know

The Australian home loan market has steadily evolved over the past decade, thanks to increasing competition from online lenders and smaller financial institutions. This shake-up has led to new home loan features and products being available.

These new products and solutions allow borrowers to manage their mortgages more effectively by tailoring them to their financial circumstances. Some innovations can expedite the home loan process or help you pay off your mortgage faster. Others offer a cash incentive to go with a particular lender. Though, not all of these features are necessarily in the borrower’s best interest.

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Cashback incentives

Plenty of Australian mortgage lenders are now offering cash incentives to take out loans with them. This is usually for refinancing but also to bring in new borrowers.

These offers typically add up to a few thousand dollars. This amount may seem attractive to anyone looking for a lump sum to spend on a holiday or new furniture, for example.

However, cashback offers often accompany higher fees and charges — or even higher interest rates. So you should be wary of the fine print and, preferably, get a mortgage expert to review the details.

Remember, your mortgage term is usually between 20 and 30 years. So, a few thousand bucks now will get swallowed up by the higher costs accompanying the loan over that period.

» MORE: What is a comparison rate on a home loan?

Customisable repayment frequency

Customising how often you make repayments is not the most glamorous innovation. Still, it allows you to pay off your mortgage in fortnightly or weekly instalments instead of the traditional monthly repayment.

Adjusting your repayment frequency could be beneficial if, for example, you get paid every fortnight and prefer to have the money come out of your pay.

Moreover, paying off your mortgage weekly or fortnightly means paying out the total amount more quickly due to the added frequency — potentially saving thousands of dollars over the mortgage term.

Key the amount you’re borrowing into a mortgage calculator with different repayment frequencies to see the difference.

» MORE: How to pay off your mortgage faster

Digital home loans

Digital lenders, also known as neobanks, are shaking up the Australian mortgage market. These new entrants, such as Tiimely and Athena, usually market fast online application processing and approvals, competitive interest rates, and lower fees.

Digital home loans are typically similar to low-doc loans in that they don’t necessarily require the same levels of documentation that traditional lenders would. However, you’ll need to look closely at the fine print before signing up for one of these loans.

» MORE: What to know about private home loan lenders

Hybrid fixed and variable loans

Hybrid loans — also known as split home loans — allow you to divide parts of your mortgage between a fixed mortgage rate and a variable one.

This type of mortgage can provide the best of both worlds — a fixed interest rate that doesn’t move for a period, which protects you from a rise in rates, and a variable part, which you could benefit from if interest rates go down.

Hybrid mortgages can, however, be complicated. They also often lack loan features available in a 100% variable account, such as redraw and offset facilities, which are only available on the variable part of the loan. Not all lenders offer hybrid loans, so you may have to shop around for one.

» MORE: Types of home loans

Offset and redraw facilities

Offset accounts and redraw facilities aren’t particularly new, but they’re still notable innovations. And while they differ, both provide ways to access any additional payments you’ve made and lessen the interest you pay.

Both have pros and cons, depending on how responsible you are with your savings and whether you’re likely to need access to those extra funds throughout your mortgage.

» MORE: How to make the most of your offset account

Rewards schemes

With lenders such as Virgin Money and Qantas moving into the home loan space, there’s also been a rise in rewards programs offered for the amount you borrow.

These offers have traditionally been associated with credit cards, but it’s becoming increasingly common to see more established lenders advertise them for refinancing mortgagees.

The idea behind the points offerings is that homeowners needn’t sacrifice things such as travel just because they have a mortgage.

» MORE: Can you pay your mortgage with a credit card?

Round-up tools

Round-up tools are relatively new to the Australian mortgage market. They involve rounding up payments made on debit or credit cards by participating lenders to the nearest dollar amount — usually between $1 and $5. The extra amount is then shifted to an account with the same lender to help pay down the mortgage.

ING, for example, allows customers using its Orange Everyday card to round up their payments so that if they buy something for $3.50, the amount gets rounded up to $5, and the extra $1.50 goes towards the mortgage.

Even small transactions can result in rounded amounts totalling $50 per month or more. This extra amount could eventually reduce the mortgage repayment by thousands of dollars. Not all providers currently offer round-up facilities, so check with your current or prospective lender.

» MORE: 10 questions to ask your mortgage broker

Salary sacrifice mortgages

Salary sacrificing for your mortgage involves an arrangement with your employer in which you agree to a lower salary, and your employer makes extra mortgage repayments on your behalf.

This move has tax benefits, potentially saving you considerable money over the entire mortgage term. However, not everyone is eligible, as you first need an employer who allows salary sacrifices and a lender agreeable to such an arrangement. Most larger lenders, government employers, and corporations provide salary-sacrificing options.

If you are interested, talk to your pay team, a prospective lender and a mortgage expert first to ensure it’s the best course of action for you.