Assessing the value of home loan features

A home loan feature is worth paying for when the money it saves, or the flexibility it realistically provides, exceeds what it costs in fees and any higher interest rate. That sounds obvious, but features are often bundled, their costs are spread across annual fees and rate differences, and their benefits depend on how the borrower actually behaves. The most reliable approach is to convert each feature into an annual dollar cost and an annual dollar benefit, then compare the two.

Moneysmart's guidance on choosing a home loan makes the same point: options and features can offer flexibility or help repay a loan faster, but some cost more, so borrowers should consider whether they will really use them. It suggests sorting features into those that are essential and those that are merely desirable, and notes that some borrowers may be better off with a basic loan with limited features.

Package home loans versus basic home loans

Lenders generally offer two broad tiers of product.

• Basic or no-frills loans. These usually carry low or no ongoing fees and a competitive variable rate. Extra repayments and redraw are commonly included, but an offset account often is not, and other options may be limited.
• Package loans. These typically charge an annual fee in return for a bundle: one or more offset accounts, rate discounts, the ability to split the loan, fee waivers on additional loan accounts and sometimes a credit card with its annual fee waived.

Neither tier is cheaper in every case. A package with a sharper rate can cost less overall than a basic loan on a large balance, and a basic loan can be cheaper where the rates are similar and the package features would go unused. ASIC's tips for refinancing suggest borrowers check whether they are paying for add-ons they do not use. The comparison rate, which Moneysmart describes as a single figure including the interest rate and most fees, helps with this, although it is calculated on a standard loan amount and term and does not value features. Product structures can be reviewed on the home loan comparison page and the lender profiles.

Offset accounts: valuable when the balance is substantial

An offset account is a transaction account linked to the loan. The lender deducts its balance from the loan balance before calculating interest each day. Its value is therefore the offset balance multiplied by the loan's interest rate, for as long as the balance is held. Because no interest is paid to the borrower, there is no interest income to declare, which can make an offset more effective than a savings account paying a similar rate.

Moneysmart (page last updated 28 July 2026) says an offset may be worth having where a borrower has a large loan, keeps a regular savings balance and wants flexible access, and may not be worth it where the balance is usually low and the loan has higher fees or a higher rate to include the feature. Its example is that where the balance is always low, for instance under $10,000, the feature may not be worth paying for. The offset account calculator estimates the saving for a given balance.

One practical check is worth adding. An ASIC review of eight banks found instances of offset accounts that had not been linked properly, and ASIC suggests customers confirm the link in online banking or statements, particularly after refinancing or switching products. A feature that has been paid for delivers nothing if it is not operating.

Redraw facilities: a low cost alternative

Redraw allows a borrower to withdraw repayments made ahead of schedule. It reduces interest in the same way as an offset, since extra repayments lower the balance on which interest is charged, and it is frequently included on basic loans at no ongoing cost. The trade-off is access. Moneysmart notes that some lenders limit how much can be redrawn or charge a fee, and others may delay access, depending on the loan terms.

For a borrower who simply wants surplus cash to reduce interest, and who does not need card access to it, redraw can deliver most of the benefit of an offset without the package fee. Borrowers who may later convert the home to an investment property face a separate tax consideration, because redrawn funds are generally treated according to their use. A registered tax agent can confirm how this applies.

Extra repayments: usually free and highly effective

The ability to make extra repayments is the feature with the clearest value. Moneysmart observes that in the early years of a loan most of each repayment goes towards interest, so extra payments in that period reduce the interest paid over the life of the loan. Variable rate loans generally allow unlimited extra repayments without charge. Fixed rate loans often cap them or do not allow them, and Moneysmart suggests checking with the lender whether extra repayments are allowed and whether fees apply.

Because this feature rarely carries a cost on variable loans, the question is less whether to pay for it and more whether a product that lacks it is acceptable. The extra repayment calculator and the mortgage payoff calculator show the effect of a regular additional amount.

Repayment holidays and repayment pauses

Some loans advertise a repayment holiday or pause, often linked to events such as parental leave, or available only where the borrower is sufficiently ahead on repayments. Two points are important. First, interest generally continues to accrue during a pause and is added to the balance, so the loan costs more overall and later repayments may be higher. Second, the feature is usually subject to the lender's approval at the time, so it is not a guaranteed entitlement.

It is also distinct from financial hardship assistance, which is available regardless of product. Moneysmart explains that borrowers struggling with repayments can ask their lender for a hardship variation, which may change the loan terms or temporarily pause or reduce repayments, and that the lender must respond in writing within 21 days. Given that safety net, and the option of building a buffer in offset or redraw, a contractual repayment holiday is seldom worth a meaningful premium on its own.

Loan portability

Portability lets a borrower keep the same loan when selling one property and buying another, by substituting the security. The potential benefits are avoiding discharge and application costs, keeping an existing rate discount and, for a fixed rate loan, avoiding break costs that would arise if the loan were repaid on sale.

The conditions tend to be restrictive. Lenders commonly require the sale and purchase to settle at the same time, the borrowers to remain the same, the new property to meet valuation and lending criteria, and the loan amount not to increase without a fresh application. A fee may apply. Portability has most value for a borrower with a fixed rate who expects to move during the fixed term. For a variable rate borrower, a move is often a convenient moment to compare the market, which can be done through the refinancing guide.

Top-ups and loan increases

A top-up increases an existing loan to release equity, for purposes such as renovations. It is generally cheaper than a personal loan and simpler than a full refinance. It is not an automatic right: the lender reassesses income, expenses and the property value under its lending criteria at the time, and lenders mortgage insurance may become payable if the increased loan exceeds 80 per cent of the property's value. Since most lenders offer top-ups in some form, the feature seldom justifies a higher fee. The home equity calculator gives an indication of accessible equity.

A method for deciding whether a feature's cost is justified

1. Identify the full annual cost. Add any annual or monthly fees to the cost of any rate difference. The rate cost is the rate difference multiplied by the loan balance. A difference of 0.10 percentage points on $500,000 is about $500 a year.
2. Estimate the annual benefit realistically. For an offset, use the average balance expected across the year, not the peak after payday. For portability or a repayment pause, consider the probability of using it at all.
3. Compare against the cheapest alternative. The alternative to an offset is often free redraw, or a savings account whose interest is taxable.
4. Calculate the break-even point. Divide the annual cost by the rate of benefit to find the balance or usage at which the feature pays for itself.
5. Review annually. Moneysmart suggests a yearly review of rates, fees and whether loan features still suit the borrower's needs.

Worked example: annual package fee against an offset balance

The following hypothetical figures are illustrative only. Assume a $500,000 variable rate loan, a package loan with a $395 annual fee that includes a full offset account, and a basic loan with no annual fee and no offset. The 6.00 per cent rate used is an assumption, not a current market rate.

Case 1: both loans have the same 6.00 per cent rate

Each $1,000 in offset saves $60 a year. The break-even balance is $395 ÷ 0.06, or about $6,583.

Average offset balance	Interest saved a year	Less package fee	Net result
$5,000	$300	$395	$95 worse off
$10,000	$600	$395	$205 better off
$25,000	$1,500	$395	$1,105 better off
$50,000	$3,000	$395	$2,605 better off

Case 2: the package rate is 0.10 percentage points higher

If the package loan is priced at 6.10 per cent, the rate difference costs about $500 a year on $500,000, so the total annual cost is about $895. Each $1,000 in offset now saves $61, and the break-even balance is $895 ÷ 0.061, or about $14,672. A $10,000 balance leaves the borrower about $285 a year worse off, while $25,000 leaves the borrower about $630 better off.

Case 3: comparing with a savings account

Suppose the alternative is the basic loan plus a savings account paying an assumed 4.50 per cent, with interest taxed at an assumed marginal rate of 30 per cent. The after-tax return is 3.15 per cent, so the offset's advantage over the savings account is 2.85 percentage points. The break-even balance becomes $395 ÷ 0.0285, or about $13,860. If the basic loan offers free redraw that the borrower is content to use, the comparison is tougher still, because redraw earns the full loan rate without the fee.

These cases show why a low offset balance seldom justifies a package, and why a small rate premium can matter more than the visible annual fee. Borrowers can test their own numbers with the mortgage repayment calculator, or request a free assessment to discuss options with a licensed professional.