Variable rate home loans remain one of the most popular Home Loan options for Australian borrowers. Unlike a fixed interest rate home loan, variable home loan rates can fluctuate throughout your loan term, offering both opportunities and considerations that every potential homeowner should understand.
How Variable Interest Rates Work
A variable interest rate changes based on market conditions and lender decisions. When you apply for a home loan with a variable rate, your home loan interest rate can move up or down during your loan period. This means your calculating home loan repayments will need to account for potential rate changes over time.
Lenders set their variable rates based on the Reserve Bank of Australia's cash rate, funding costs, and business decisions. When rates decrease, you benefit from lower repayments. When they increase, your monthly payments will rise accordingly.
Key Features of Variable Rate Home Loans
Variable rate loans come with several features that can enhance your borrowing experience:
- Offset Account Options: Many variable loans include offset account facilities, allowing you to reduce interest charges by offsetting your savings against your loan amount
- Redraw Facilities: Access additional funds you've paid above minimum repayments
- Extra Repayment Flexibility: Make additional payments without penalties
- Rate Discount Opportunities: Lenders often provide interest rate discounts for variable loans
Understanding Loan to Value Ratio Impact
Your loan to value ratio (LVR) significantly affects your variable rate and loan features. A lower LVR often means:
- Better interest rate discounts
- Avoiding lenders mortgage insurance (LMI)
- Access to premium loan features
- Improved borrowing capacity
When buying a home, consider your deposit size and how it affects your LVR. This calculation includes factors like stamp duty and other purchase costs that impact your overall financial situation.
Application Process Considerations
The Home Loan application process for variable rates typically involves:
- Providing bank statements and income documentation
- Demonstrating your borrowing capacity
- Property valuation and assessment
- LVR calculation and LMI evaluation if applicable
Many lenders offer a streamlined application process for variable loans, particularly when you get pre-approved through Home Loan pre-approval. This helps you understand your borrowing limits before entering the property market.
Advantages and Considerations
Advantages:
- Benefit from rate decreases
- Additional features like offset accounts
- Flexibility for extra repayments
- Potential for ongoing rate discounts
Considerations:
- Rates can increase, raising repayments
- Budgeting requires planning for rate changes
- Market volatility affects your costs
Building Home Equity
Variable rate loans can help build home equity through:
- Market value increases
- Principal reduction through repayments
- Extra payments reducing loan balance faster
- Offset account benefits reducing interest charges
Accessing Multiple Lender Options
Working with mortgage brokers helps you access Home Loan options from banks and lenders across Australia. This approach allows comparison of:
- Different variable rates and features
- LMI requirements and costs
- Loan features and flexibility
- Application requirements and processes
LoanBuddy specialises in connecting Austral residents with suitable home loan products. Whether you're a first home buyer or looking at refinancing options, understanding your borrowing capacity helps determine the most suitable loan structure.
Making Your Decision
Choosing a variable rate loan depends on your:
- Risk tolerance for rate changes
- Desire for loan flexibility
- Need for additional features
- Long-term financial goals
Consider conducting a regular loan health check to ensure your variable rate loan continues meeting your needs as market conditions and your circumstances change.
Variable rate home loans offer flexibility and features that suit many Australian borrowers. Understanding these characteristics helps you make informed decisions about your home loan structure and repayment strategy.
Call one of our team or book an appointment at a time that works for you to discuss your variable rate home loan options.