How to assess home loan features and interest rates: Q&A

When it comes to home loans, how do you know what is a competitive, quality home loan? Many lenders might offer other benefits like a one-off cash back offer, it is worth considering the benefit of offers like this and ensure that you aren't trading off against other features which could be important to you during the life of your loan. Here’s a few tips that can help you decide on the right home loan for you.

The interest rate

Always start with the interest rate. This is the rate at which your lender charges interest on your loan. The lower the rate - the smaller your monthly repayments and the lower the cost of your loan over the long term.

Repayment types

There are two ways to repay your home loan: principal and interest or interest only. Most borrowers choose to make principal and interest repayments, which means they repay the principal and the interest on their loan together (the loan balance reduces with each repayment). While this does mean your monthly repayments can be higher than an interest only loan, the benefit is that you're repaying your debt from your first repayment - which means you pay your loan off sooner.

Interest-only repayments on the other hand, means you just repay interest expense charged on your loan every month. These repayments are smaller than principal and interest repayments, but you will need to pay off the principal at the end of the interest only term (typically 1-5 years). Repayments at the end of the interest only term will be higher than if you had made principal and interest repayments from the start of your loan.

Extra repayments

When looking at home loans, it’s worth checking to see if you are able to make extra repayments. Not all home loans - especially fixed-rate products - will let you do this. With a Qantas Money Home Loan (QMHL) however, if you are a good budgeter, your salary increases, or you come into some extra cash, you can put this extra money towards making extra repayments. This means you’ll get out of debt faster and pay less interest. A QMHL gives you the flexibility to pay extra, even on a fixed rate home loan (conditions apply).

An offset account

An offset account when used properly will save you money on your home loan. Interest is charged on the principal of your home loan (the principal is the amount you owe the bank). When you have an offset account, interest is charged on the balance of your home loan. The home loan balance is the principal of the loan, minus any money you have in your offset account. The added bonus is, you can use the money in your offset account just like you would if it was in an everyday transaction account. It means you can have the best of both worlds.

For more information, visit our What’s an Offset Account article.

Loan-to-value ratio (LVR)

Put simply, LVR just means how much you borrow compared to the value of the property.

While some home loans let you borrow up to 95% of a property's value, keep in mind that whenever you borrow more than 80% of a standard property's value, you need to pay lenders mortgage insurance. This can cost you several thousand dollars depending on your deposit size and the price of your property.

Exploring Additional Home Loan Benefits

Many lenders might present other benefits such as a one-off cash back offer. It is worth considering these additional benefits and ensuring that you aren't compromising on other features - which could be important to you - during the life of your loan. Qantas Money Home Loans is the only home loan that rewards you with 100,000 Qantas Points every year^ for the life of your loan.

^* You have to be a Qantas Frequent Flyer member to apply for the Qantas Home Loan. This information has been prepared without considering your objectives, financial situation or needs. You should consider your circumstances before acting on this information.

^{^} Qantas Frequent Flyer members will earn 100,000 Qantas Points upon settlement of their Qantas Money Home Loan. Qantas Frequent Flyer members will also earn an annual bonus of 100,000 Qantas Points which accrues three months after the settlement anniversary of their Qantas Money Home Loan up to 30 years, provided the loan is in compliance with the Qantas Money Home Loans Points Eligibility Policy, not in arrears or default and the loan is not the subject of hardship relief or assistance. In the instance of joint applicants, the Qantas Points by default will be awarded to the primary applicant annually unless you opt to either split the points between the secondary or primary applicant or award the points in full to the secondary applicant. Qantas Points will be credited to the member’s Qantas Frequent Flyer account within 8 weeks.