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Variable Home Loans
Variable home loans can be a good option for people who need extra flexibility and are willing to take the high interest rates with the low.
Here’s what you need to know about variable home loans, from how they work to whether a basic or standard variable loan might be the better choice for you.
What are variable home loans?
Unlike a fixed home loan, the interest rate you’ll pay on a variable home loan will fluctuate at your lender’s discretion and could be influenced by changes to Australia’s official cash rate.
That means when the Reserve Bank of Australia (RBA) increases the rate, you might end up paying more interest on your variable home loan. However, when the RBA decreases the interest rate, your loan repayments may be reduced.
It’s important to remember that it’s up to your lender whether they pass on any rate changes, and they can change the interest rate on variable home loans independent of the RBA.
Basic variable or standard variable home loan?
Home loan products and rates differ widely between lenders, but standard variable home loans tend to offer more flexible features, such as:
- Offset accounts. An offset account is a transactional savings account in which the balance of your savings is deducted from the principal, reducing your interest payments.
- Redraw facilities. Redraw facilities allow you to access additional funds you’ve paid off on top of your minimum loan repayments.
- Additional payments. Some loans allow you to make extra repayments without fees or charges, which may help you pay off your home loan quicker.
Basic variable home loans, on the other hand, typically lack the extra features but generally offer a lower interest rate than standard variable loans.
Who do variable home loans suit?
As mentioned, basic variable home loans may offer a lower interest rate, so they can be a good choice for first-home buyers who need a simple, low-cost loan.
Standard variable home loans may be suited to those who want more flexibility in their home loans. For example, fastidious budgeters may like having the option to make additional repayments when they can, which can reduce the overall cost of the loan and help you pay it off years ahead of schedule.
Most lenders offer a unique standard variable home loan, often with a discounted interest rate.
Try playing around with iSelect’s Extra Repayments Calculator to see how much you could save by regularly making additional contributions.
What are the pros and cons?
Standard variable home loans often offer a discounted interest rate, along with extra features that could potentially help you pay off your loan faster and save you more money in the long run.
For example, an offset account may be provided free of charge with a standard variable home loan, while a basic variable loan might offer lower rates as it comes without the added features.
Another benefit of standard variable home loans is that there are usually no restrictions in place that prevent you from paying off your home loan before the full term.
The major benefit of basic variable home loans is the lower interest rates, but remember that you’ll get fewer features.
If you’re still tossing up between a standard or basic variable home loan, or even a fixed vs variable home loan, a qualified mortgage broker will be able to assist you based on your unique situation.
For more information about variable and fixed home loans, or for advice about whether a fixed vs variable home loan is the best fit for you, call 13 19 20 to speak with one of our qualified mortgage brokers. Or simply start comparing home loans today.