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How to Assess Home Loan Features and Interest Rates

At Tiimely Home, we want to help you make an informed choice by understanding the key features and interest rates of your home loan. We'll take you through the steps so you know what to look for.

April 27, 2023

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Choosing the right home loan is an important decision that can have a big impact on your financial future. But here's a secret: home loans aren't as complicated as you think they are. In this guide, we'll take you through the steps to help you assess home loan features and interest rates.

The interest rate

Let's start with the interest rate. This is the rate at which your lender charges interest on top of the principal of your loan (how much you've borrowed). A lower rate means smaller monthly repayments.

Conversely, a higher interest rate can mean higher monthly repayments and more money paid in interest over the life of the loan.

Some loans have variable interest rates which are subject to change. Others are fixed, which means your rate won't change for a set number of years. Although Tiimely Home doesn't currently offer them, a split loan is when you can apply a variable rate to a portion to the loan balance, and fixed to the remaining balance – the best of both worlds, if you’re not sure which way to go.

Repayment types

There are two ways to repay your home loan. Most borrowers make principal and interest repayments, where they repay the principal and the interest together. Your monthly repayments can be heavy, but you're repaying your debt from day one.

Interest-only repayments allow you to just repay interest charges at the beginning of the loan. These repayments are much smaller, but the catch is you will need to pay off the principal later and it will cost you more in the long run.

Extra repayments

If you have the money to make extra repayments on your home loan, for example, if your salary increases or you come into some extra cash you can put this toward your loan and pay it down faster, which means you'll pay less interest over the life of the loan. This handy calculator can give you an estimate of the savings you can make with extra repayments.

But some home loans, especially fixed-rate products, limit the amount of extra repayments you can make per year, and or charge a break cost if you decide to end your fixed term early. It's worth checking this when looking at home loans.

An offset account

An offset account functions like a savings account attached to your home loan. The money in it is yours and you can save or spend it as you like. But as long as the money is sitting there, it offsets the principal on your home loan.

In other words, if you put $20,000 in your offset account, it essentially looks like you've paid an extra $20,000 off your loan principal. This means you pay less interest. If you kept that $20,000 in the offset account, you'd actually end up paying off your home loan faster.

You can spend the money when you need it, but then your principal will go back to the full amount, meaning your interest repayments will go up again.

Pair an offset account with a Tiimely Own fixed rate home loan to give your savings a super boost. Tiimely Own's offset account is available for $10/mth.

A redraw facility

Don’t want to pay extra for an offset account? Most home loans come with a redraw facility, and these are usually free (make sure to check with your lender, but Tiimely Own’s is free). A redraw facility allows you to access or ‘redraw’ extra repayments you have made on your home loan. It takes a bit of time for you to be able to access the money (usually 1 to 2 business days), so keep this in mind when planning your finances. For example, if your monthly repayment is $2000 but you put in $5000, you can only 'redraw' the additional $3000.

Loan-to-value ratio (LVR)

This is a confusing industry term that is really just a number for the portion of the property’s value that you’re borrowing. The LVR tells you how much you need to have saved as a deposit compared to the value of the property you're buying.

Home loans generally require a minimum LVR of 80%. This means you’ll borrow 80% of a property's value, and you’ll need to save a 20% deposit to make up the difference. For example, if the house you're buying costs $500,000, you will need a $100,000 deposit (20% of $500,000). Note, your deposit amount is separate from the upfront costs you’ll need to cover, like stamp duty and other government fees.

Some home loans (Tiimely Home requires a minimum 10% deposit) let you borrow up to 95% of a property's value. These usually require you to pay Lender’s Mortgage Insurance (LMI) – an insurance premium that protects the bank in case you default on your loan (that’s right, it’s not there to protect you). Some lenders will also couple this with a higher interest rate because taking on a loan with a lower deposit could be considered higher risk for them.

LMI can cost you several thousand dollars or more, depending on your deposit size and the price of your property.

But if you've only got a 5% deposit, a high LVR means you could get a home loan sooner rather than later.

It’s worth seeking independent financial advice to understand if getting a high LVR loan meets your financial goals, or if you’re better off saving up for a little longer.

Our in-house broker service can find the perfect loan for you if you don't meet the requirements for a Tiimely Own home loan.

Loan portability

If you're likely to sell your home and move before you pay off the home loan, then loan portability is very helpful. This feature means your home loan simply carries over to your new property without the need to refinance and thus re-apply for a whole new home loan.

Assess the fees and charges

Fees and charges vary between lenders and can add up over time. Be sure to consider any upfront fees, ongoing fees, or exit fees associated with the home loan. It's important to factor in these costs when assessing the overall value of the loan. Tiimely Own don’t charge any application or ongoing fees (unless you decide on an offset account which is $10/mth). You’ll just need to cover any applicable third-party and government fees.

At Tiimely Home, we offer a range of home loan options to suit all kinds of needs. If you are not eligible for a Tiimely Own home loan, check out our in-house broker service. Our online platform makes it easy to compare interest rates and loan features. Contact us today to learn more about how we can help you find the right home loan for your financial goals.

Legal information about our rates
Our home loans are subject to credit criteria and eligibility requirements. Home loan interest rates are for new customers only and can change. Our comparison rates are based on a $150,000 loan amount over a 25 year term. They factor in fees associated with applying for the loan; ongoing fees and fees associated with leaving the loan. Our fixed loans roll to a variable principal and interest rate at the end of the fixed term. If the interest only period is not specified, the comparison rate is calculated on a one year period.

WARNING: The comparison rates are true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

Tiimely Turnaround
^Our turnaround times are up to 2x faster than the industry, based on a comparison of our average platform submit to approval time compared to industry submit to approval time, published here  (June 2023). Customer turnaround times are dependent on individual circumstances and may require an assessor to obtain more information.

Our trade mark
Tiimely is a registered trademark of Tiimely Pty Ltd.

Tiimely FAQs and Guides
At Tiimely Home we are not financial advisers and recommend seeking independent financial and legal advice to check how the information we provide aligns with your individual circumstances.