Speech bubbles overlapping on a purple background

Top home loan features to look for when rates rise

Rates couldn’t stay that low forever. And while rising rates can cause challenges such as rising repayments, a little homework goes a long way to reduce their impact.

So how can you make the most of your home loan, so that you make the least on your repayments?

1. Open an offset account

Adding an offset account can help you pay off your home loan quicker. That’s right – and here’s how.

An offset account is a transaction account, which means you can do your day-to-day banking from it. But when you link it to your home loan, the balance in your offset reduces the interest that accumulates. The more money in your offset account, the less interest you’ll pay on your home loan.

To demonstrate, meet Jack:

  • Jack has $400k still to pay on his loan, and $40k in his offset account.
  • Because he has an offset, Jack doesn’t pay interest on the full $400k.
  • Rather, he only pays interest on the difference, that is $360k.
  • If the money in Jack’s offset grew to $50k, he’d only pay interest on $350k.

So you can see when interest rates rise, a linked offset account is an easy way to keep your payments down.

2. Choose a redraw facility

A redraw is a feature that enables you to make extra payments into your home loan account, and access this money should you need it.

That means if you need to pay for, say, an emergency medical bill or unforeseen travel expenses, you can redraw these funds from your home loan to cover it. Of course, if you don’t redraw, the extra repayments mean you’re reducing the interest you pay on your home loan.

Sounds like a win-win, right? Just be sure to check any fees or restrictions that come with a redraw, and remember that your interest and home loan balance increase any time you take money out.

To find out how you can make more of your home loan, and less on your repayments, talk to the Virgin Money Home Loans Team.