Understanding Variable Rate Home Loans
When applying for a home loan in Redbank Plains, one of the most significant decisions you'll face is choosing between variable rate, fixed rate, or split rate home loan products. A variable rate home loan is a popular option among Australian borrowers due to its flexibility and potential for interest rate discounts when the market moves favourably.
With a variable interest rate home loan, your interest rate can fluctuate based on changes in the cash rate set by the Reserve Bank of Australia and lender-specific decisions. This means your home loan repayments can increase or decrease throughout the life of your loan. While this might seem uncertain, variable home loan rates come with features that can help you achieve home ownership goals while maintaining financial stability.
Key Features of Variable Rate Home Loans
Variable rate home loan packages offer several features that can help you build equity and improve borrowing capacity over time:
Offset Account Options
Many variable rate home loan products include a linked offset or mortgage offset account. This account works like a regular transaction account, but the balance reduces the amount of interest charged on your loan amount. For example, if you have a $400,000 owner occupied home loan and $20,000 in your offset account, you'll only pay interest on $380,000. This feature can save thousands of dollars over the life of your loan.
Flexible Repayment Options
Variable rate loans typically allow you to make additional repayments without penalty. This flexibility helps you pay down your loan faster and reduce the total interest paid. Whether you receive a work bonus or tax refund, you can contribute these funds directly to your home loan to build equity more quickly.
Redraw Facilities
Most variable home loans include a redraw facility, allowing you to access any extra repayments you've made. This provides a financial safety net if unexpected expenses arise, while still helping you need lower repayments in the long term.
Portable Loan Features
A portable loan feature allows you to transfer your existing home loan to a new property without refinancing. This can save you money on application fees and Lenders Mortgage Insurance (LMI) when you're ready to upgrade or relocate within Redbank Plains or elsewhere.
Comparing Variable Rates with Other Options
When you compare rates across different home loan options, understanding how variable rates differ from fixed interest rate home loans is essential for making an informed decision.
A fixed interest rate home loan locks in your rate for a set period, usually between one and five years. This provides certainty around calculating home loan repayments, which can help with budgeting. However, fixed rate loans typically don't offer the same flexibility as variable options - you may face break fees if you want to make extra repayments or exit the loan early.
Some borrowers choose a split loan approach, dividing their loan amount between variable and fixed portions. This strategy provides some rate security while maintaining access to variable rate features.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Simple Lending today.
Interest Rate Discounts and Rate Comparisons
One advantage of variable rate products is the potential for interest rate discounts. Lenders often offer rate discounts based on factors such as your loan to value ratio (LVR), whether you're an owner occupier or investor, and the overall relationship you have with the financial institution.
When conducting a home loan rates comparison, consider these factors:
- The advertised variable interest rate versus the comparison rate
- Available home loan features and home loan benefits
- Fees associated with the home loan application and ongoing maintenance
- Whether the product suits your financial situation and goals
- Access to Home Loan options from banks and lenders across Australia
Working with experienced mortgage brokers like Simple Lending gives you access to current home loan rates from multiple lenders, helping you identify the most suitable home loan packages for your circumstances.
Variable Rates for Different Loan Types
Variable interest rates apply to various home loan products, including:
Principal and Interest Loans
With principal and interest repayments, each payment includes both the loan principal and interest charges. This structure helps you build equity from day one and is typically required for owner occupied home loans under certain loan to value ratios.
Interest Only Loans
Interest only variable rate loans allow you to pay only the interest charges for a set period, usually up to five years. While this doesn't build equity initially, it can help with cash flow management or investment property strategies.
Benefits of Choosing Variable Rate Products
The home loan benefits of variable rate products extend beyond just flexibility:
Lower Initial Rates
Variable home loan rates are often lower than fixed rates at the time of application, meaning you might secure the lowest rates available in the current market. This can result in lower initial repayments as you establish your home ownership journey.
Rate Decrease Potential
When the Reserve Bank reduces the cash rate, lenders typically pass on at least some of these reductions to variable rate borrowers. This means your repayments could decrease without any action on your part.
Feature-Rich Packages
Variable rate home loan packages generally include more features than fixed rate alternatives, giving you greater control over managing your mortgage and working toward financial stability.
No Break Fees
Unlike fixed rate loans, variable products don't typically charge break fees if you decide to refinance, pay off your loan early, or make substantial additional repayments.
Understanding Home Loan Pre-approval
Before committing to any home loan product, obtaining Home Loan pre-approval is an important step. Pre-approval provides certainty about your borrowing capacity and shows sellers you're a serious buyer. This is particularly valuable in areas like Redbank Plains where property markets can be competitive.
During the pre-approval process, lenders assess your financial position, including income, expenses, existing debts, and deposit amount. They'll also consider factors affecting your loan to value ratio and whether you'll need to pay Lenders Mortgage Insurance.
Making the Most of Variable Rate Features
To maximise the benefits of your variable rate home loan:
- Use your offset account as your primary transaction account to maximise interest savings
- Make regular additional repayments when possible to reduce your loan term
- Review your loan annually to ensure you're still getting competitive rates
- Consider requesting a rate review if your lender's current rates are lower than what you're paying
- Maintain a good relationship with your lender to access future rate discounts
Getting Expert Assistance
Navigating home loan options and features can feel overwhelming, especially for first home buyers or those looking to invest in property. The variety of home loan products available, combined with constantly changing current home loan rates, makes it challenging to identify the right solution for your situation.
Working with mortgage brokers who access Home Loan options from banks and lenders across Australia ensures you're comparing genuine alternatives rather than limiting yourself to one institution. This approach helps you secure a suitable variable rate home loan that supports your goal to achieve home ownership and maintain your financial wellbeing.
Whether you're applying for your first home loan or refinancing an existing mortgage, understanding variable rate loan features empowers you to make decisions aligned with your financial goals. The flexibility, potential savings, and feature-rich nature of variable products make them an attractive option for many Redbank Plains residents seeking to secure their future through property ownership.
Call one of our team or book an appointment at a time that works for you. Simple Lending is here to help you compare rates, understand your options, and find a home loan solution that suits your individual circumstances.
