When entering into a home loan product, it can be hard to make a decision on what would be best suited to your requirements. Basic products can simplify the process, and can always be adjusted later on in your journey, depending on what you feel that you are missing. Basic products are a simplified approach to home lending, and will commonly come as a ‘no frills’ approach, providing the basic needs to your financial situation. 

‍

How Do Basic Products Work?

Basic products are commonly provided as a variable interest rate lending option, and the majority of these products have no restrictions on repayments, and will also commonly provide you with a redraw facility; which we will explain further below. Basic products are a simplified strategy for home lending, and the largest difference between this and common ‘package’ based products, is that there is no offset account attached to basic home loans. 

Do Basic Products Vary from Lender to Lender?

Basic products do vary from lender to lender, and the most common variation is the ability to redraw from your home loan, and the way that you are required to access these funds. As an example, some lenders will request that you redraw a minimum amount, while others will have no restrictions on redrawable funds. 

Downsides of Basic Products

The most common downside of a basic product is the lack of offset account, if you can get past this, you’re in the clear.

‍

Alternative to Basic Products

The most common alternative to a basic product is a product that is within a package, which usually comes with an optional credit card, some potential discounts on additional services, and a minimum of one offset account. 

Redraw Facility

The redraw facility is the most important aspect when it comes to basic products. A redraw facility is a feature offered in some mortgage plans that allows you to make extra payments toward your loan, above the minimum required amount. Later, if you find yourself in need of cash, you can redraw or withdraw these extra payments. Essentially, it provides a way for you to pay down your mortgage more quickly, while still giving you the flexibility to access those additional funds if needed.

Pros/Cons

The primary benefit of a basic product is that this account will not commonly come with any package fees, for some lenders, this can save you almost $12,000 over the life of the loan. We should note however, not every lender charges for their package products, with some extremely competitive offers in the market. This is something that we compare on a daily basis, and would be happy to provide advice on. 

‍

Examples

As an example, let’s say that you have a basic product home loan, and you have $20,000 in savings. If you are keeping those funds separately in a savings account, they may not be as impactful with a basic product. The only way to truly benefit from a basic product is to keep surplus funds in the redraw facility, but we should note, those funds are loan funds, paid in advance. The primary benefit of utilising the redraw facility is in relation to interest reduction. As interest is calculated daily and applied monthly, holding your funds within your home loan (in advance), will lower the interest accrual on a daily basis. 

‍