VARIABLE

Standard Variable rate loans are the most common type of home loan in Australia. The interest rate on a Variable loan moves up and down with movements in the Reserve Bank cash rate and may be influenced by your banks cost of funding. Variable rate loans usually require principal and interest payments to pay off the principal but can be structured as interest only loans. Basic Variable loans usually offer a reduced interest rate but don’t provide flexibility as far as repayments are concerned and fewer loan features like offset accounts and redraw facilities.

Upside

  • When interest rates fall your minimum loan repayment will as well.
  • Standard variable loans allow the borrowers to make additional (extra) repayments which can save you money and reduce the time it takes to pay off your mortgage.
  • Most variable loans don’t provide a redraw facility which means you won’t be able to redraw funds you have already paid off your loan.

Downside

  • When interest rates rise, so will your minimum repayments.
  • Higher rates and higher repayments can have a significant impact on your budget. Ensure you understand your ability to continue to make your mortgage repayments at higher borrowing rates to be safe.
  • Only utilizes redraw facilities when absolutely necessary because continually withdrawing extra funds from your mortgage will cost you more and increase the time it takes to pay it off.
  • Basis variable loans don’t usually allow you to pay off the loan early or gain access to funds you have already paid off the loan.