Variable rate home loans are the most popular type of loan in Australia for a reason. In short, they offer far more flexibility than a fixed rate loan, and you can use it to your advantage.
With a variable rate loan, you can make unlimited extra repayments with no fees. This means that you can pay off your loan sooner, with less total interest.
If you have made extra repayments, you can also make an unlimited number of redraws from those repayments, without incurring any extra fees.
That means that you can get the best of both worlds, using your money to save on interest, while also having access to the money when you need it.
If you really want to make the most of this approach, you can even combine your variable rate loan with a redraw offset facility, which operates in a similar way to an offset account. The money you put into the redraw offset facility is then “offset” against your outstanding loan balance, and you only pay interest on the difference.
ou have full access to the money in the redraw offset facility through a free VISA debit card, ATMs and online.
None of these benefits are available if you fix the rate on your loan, although a fixed-rate will give you the peace of mind of knowing that your rate cannot increase during the agreed fixed-rate term..
You can also take a bet each way, by having a part fixed, part variable interest loan. A split loan allows you to manage some of the risks of interest rate rises while still being able to make extra repayments.