There are many home loan options on the market, but variable rate home loan products are always popular because they usually provide the greatest flexibility for borrowers. They’re often available as a standard variable rate with full flexibility and options, or a basic variable rate where you may sacrifice flexibility for lower interest. A variable rate home loan is a good choice for those who desire flexibility over security
Here are some features you can expect to see from most lenders.
Features of a variable rate loan
A variable rate home loan gives you more control over your repayments with no penalties for higher monthly payments or bulk reductions to the principal of the loan. You can choose to pay weekly, fortnightly, or monthly and can set your payments at any level as long as they’re more than your required monthly repayment.
The loan interest rate moves (generally) in line with the Reserve Bank of Australia’s (RBA) cash rate decisions which can be both good and bad for borrowers. It means you get immediate benefit when interest rates drop, but conversely, you’ll also be susceptible to interest rate rises. Make the most of interest rate reductions by keeping your repayments at their original level. This will mean you’ll be paying extra off your loan principal each month and be on your way to financial freedom sooner.
Redraw reflects extra repayments that are credited directly to your loan. Your loan balance decreases but the extra funds will be available to draw out of the loan if needed. When you make a redraw, your loan balance will increase for the amount you’ve drawn. A redraw means you can keep savings in your home loan and benefit from the interest reduction while you don’t need the funds.
If you like the flexibility of variable rate loans but still need some comfort around interest rate rises, you can split your loan into variable and fixed portions. This helps to mitigate interest rate risk (fixed rate component) while also giving you the option of making extra repayments (variable rate component) to repay your debt sooner.
Seek help to make sure a loan product is right for you
Purchasing a home is a significant long-term commitment and one of the biggest financial decisions you’ll make in your life. So, when you’re looking for the best way to fund your purchase, it’s important to find a loan that works for you and your circumstances. It can be tough to navigate the loan options available and determine whether they’re right for you. This is why we recommend seeking expert advice before making a decision.
Call Yotta, our Director, Lending Products, for a chat on +61 2 9278 9700 or send us an email. We’d be happy to speak with you about the options available.