A basic home loan is generally a no frills home loan. It doesn't usually have an offset account, or come with a mandatory credit card or other fancy features. The BIG benefit of all that is, it will generally have a lower interest rate compared to the standard variable rate loan and you won't be paying the annual package fees (usually around $400 if you opt for the banks professional package). Many basic home loans have no ongoing fees but lenders will regularly charge an application fee. This type of loan is straightforward and like it's name basic.
If you are trying to decide whether to take a basic home loan or a standard variable home loan the decision will usually come down to two main areas:
Features of the Basic Home Loan
The basic variable home loan will normally allow you to pay of as much or as little as you like and will also allow you to redraw extra payments you have made. If you have low borrowings and this is all you need then a basic home loan may be a perfect fit for you.
Before deciding on the basic
In our first home owner
Fees and Cost in a basic variable loan
Basic home loans are attractive due to the
When borrowing it is important to not only look at the headline interest rate on a home loan but the upfront and ongoing costs as well. If you are borrowing under
How do you decide the best option?
Each lenders comparison rate is a great tool to assist you to compare the overall cost of borrowing. Fees have a much bigger impact on cost the less you borrow and a lesser impact the more you borrow.
To give you some idea, below I have compared a $400 annual fee and the equivalent increase in interest for you to break even and be indifferent to choosing a basic loan or a fully featured loan based solely on cost.
Borrow $400,000 with an annual fee is $400. This is equivalent to 0.1% of interest
$200,000 Annual fee is $400 This is equivalent to 0.2% of interest
$100,000 Annual fee is $400 This is equivalent to a 0.4% of interest
As you can see from above, the less you borrow the more fees impact the overall cost.
Hidden Traps of the Basic home loan
Many basic home loans can look like a cost effective options but you need to check for any hidden fees, particularly those associated with settlement, such as legal and settlement attendance fees, LMI processing fee or Guarantor fee. You should also be on the lookout for any redraw fees that may apply if you want to redraw below the minimum redraw amount or manually redraw at a lender branch.
Considering the best home or investment loan is more than just the headline interest rate, features and cost.
Understanding your longer term goals, and creating a strategy to pay down your debt or invest more efficiently is essential. At
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