There are many different home loan options, so it’s important to find the one that’s right for your financial situation. Repaying your mortgage will be a financial commitment for many years to come, so you should understand all the elements involved before taking the plunge
Using a mortgage broker is a useful way to get expert advice in plain English. Here, Choice Home Loans explains the most important things you need to know about variable rate home loans.
What is a variable rate home loan?
Standard variable rate home loans are the most popular loan type in Australia. As the name suggests, a standard variable rate home loan has an interest rate that can fluctuate. This generally moves up and down in line with changes the Reserve Bank of Australia (RBA) makes to official interest rates – though a bank can make the decision to change its rates independently.
The benefits of a variable rate home loan
Standard variable rate home loans come with a greater range of options and greater flexibility than a fixed rate loan. For example, you can often redraw or make additional payments at no cost with this type of loan, which means you may pay off your home loan sooner and may pay less interest overall.
Home loan features
Mortgage offset accounts are another popular feature of variable rate loans. A mortgage offset account is a type of lending arrangement where you maintain a savings account and a home loan with the same lender. Instead of receiving interest on the savings account, the interest on your home loan is calculated on the net balance of the loan less the amount you have in your savings account.
These different features and potential money-savers are why standard variable rate home loans are so popular. However, there are reasons why another loan type might be better for you.
The downside of rate changes
As variable rates typically go up and down, when you have a variable home loan it’s important to ensure you have enough flexibility in your financial situation to absorb the extra costs of a potential rate increase. This may make budgeting more complex, and not everyone will be in a position to operate with this small degree of uncertainty.
Typically, in economies where interest rates are expected to increase, variable rate home loans become less popular.
Get the right advice
Before you settle on which loan type is right for you, talk to one of our qualified mortgage brokers about your options. Take the time to consider what type of loan will best suit your situation. If you need help navigating the sometimes confusing home loan system, a Choice Home Loans broker is available to support you and talk you through the different options available.
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