Residential mortgage products, structures and features
Domain 3 - Residential mortgage products, structures and features
This domain tests product fit: how repayment structures, rates and features affect cost, flexibility and risk.
Core rules
- Table loans amortise principal and interest; interest-only loans reduce payments temporarily but not the principal.
- Fixed rates give certainty but can carry break fees; floating, offset and revolving products offer flexibility at usually higher rates.
- Offset accounts use savings to reduce interest; redraw and revolving credit allow access to repaid funds.
- Splitting a loan across fixed and floating portions can match both certainty and flexibility.
- Low-equity premiums, application fees, valuation fees and early-repayment costs form part of the true cost.
Worked example
A borrower has $120,000 of savings and wants to reduce interest while keeping access for a renovation. A 100% floating offset structure may reduce interest, but the borrower may spend the offset balance. A better fit could be a $300,000 fixed portion and a $120,000 offset or revolving portion, with the renovation budget documented. The adviser should compare total interest, fees and repayment flexibility, not just the headline rate.
Traps
- Recommending interest-only without an exit strategy.
- Quoting a fixed rate without checking break-fee exposure.
- Assuming offset balances are always available.
- Ignoring that revolving credit requires disciplined repayment.
- Comparing rates without fees and low-equity premiums.