The Australian Bureau of Statistics (ABS) has reported that variable rate home loan encompasses 86.5% of the entire mortgages, as of 2013. It is no secret that the house prices in Australia have gone up to 14.9% in 2014, which is 40% higher than the last three years. Bigger cities like Melbourne, Sydney, Perth, and Adelaide have recorded an 8.9% increase, consequently. Point being, it should not come as a surprise when locals are looking for cheaper home loan rates which they can likely get from a variable home loan product.
What is a Variable Rate Home Loan?
It is another type of mortgage that has no fixed interest rate. The rate basically changes every time there is a rise or fall in the current interest rates of the country. However, compared to a fixed rate home loan, the application and annual fees are much cheaper and flexible. Another notable difference of variable home loan from its fixed counterpart is that the former commonly comes with extra features, allowing you to be flexible in your mortgage and savings.
For example, Newcastle Permanent’s variable rate home loans are loaded with useful features such as 100% interest offset accounts, no ongoing fees, a redraw facility, up to 95% of the property’s value can be borrowed, and the flexibility in repaying the interest-only for five years or go for a principal and interest repayment term. Split loan is also allowed, in which you may combine your variable home loan with other products of the bank, so you can easily customize your loans according to what suits you best.
Overall, some benefits of a variable rate home loan includes;
- Access to offset accounts
- Cheaper fees
- Lump sum payments are allowed
- Flexible features
- Easier to switch to another loan product or refinance
- Make the most out of the decreasing interest rates
Difference(s) between Standard and Basic Variable Rate Home Loans
Apparently, people tend to overlook the cunning difference between the two variable rate loans. It is probably because most Australian banks offer standard variable products because of its popularity. In fact, 50% of the entire home loan borrowers in the country do have this type of mortgage.
If you want a home loan product that carries loads of features like additional repayments (i.e. lump sum), redraw facility, offset accounts, and the choice to split your various mortgages, then the standard variable rate is the right option for you. It is also this reason why real estate investors are opting for this product because it has got all the flexible features they need long-term.
Meanwhile, basic variable are recommended to first-time home buyers. Australian banks offer basic variable loans at a price that is 0.7% cheaper than the standard variable and fixed rate loans. One of its downsides though is the potentially greater discharge costs, should you decide to close it three years after purchase.
How to Make the Most Out of Your Variable Rate Loan
Standard variable rate home loans are best paired with a professional/special package. Some lenders may be able to provide such an option, which could give you an additional discount on the rates overall. However, the lender might require you to sign up for a fixed annual fee.
What you can do to max up the benefits of a standard variable rate home loan is by combining it with your other loan product. Then, you could be eligible to receive discounts that may go as high as 0.65%, and it can be extended to your offset account. Therefore, you will be able to strike a good balance between your credit and remaining loan balance, thus reducing the payable interest on your loan.