Variable loans are among the most popular home loans in Australia due to their extra account features and repayment flexibility, as well as the fact that Australian interest rates have been relatively stable for some time.
Variable home loan interest rates increase and decrease in accordance with fluctuations in the rates set by the Reserve Bank of Australia (RBA). If interest rates go up, your mortgage repayments increase; if they go down, your payments are reduced. While RBA rates are a guide, lenders are entitled to set their variable rates independently.
There are two types of variable home loans:
These loans are popular because they offer features designed to help you pay off your loan faster such as redraw facilities, extra repayment options and access to a line of credit.
These loans generally offer fewer features and less flexibility than their standard counterparts, but make up for the lack of bells and whistles by providing lower rates - sometimes as much as 0.5% p.a. - and therefore lower repayments.
Whether you're opting for the standard or variable home loan, in the current market where competition is stiff for your business, you may also be able to negotiate a slightly lower rate.
Compare variable home loans from leading lenders at iSelect.