A variable rate loan is a type of loan where the interest rate is a floating rate where the interest rate may go up or down over the life of the loan. When this happens, your monthly repayments will also change.
Advantages and disadvantages of variable interest rate
The main advantage of a variable interest rate is its flexibility. The alternative type of loan, which is fixed-rate, has more restrictive and limited features. With a variable rate loan you can make extra repayments towards your mortgage which in turn will help you pay off your loan sooner.
Variable rate loans also have the capacity to add a redraw offset facility. This feature is very beneficial because lets you offset your savings against your loan balance. Say your remaining loan balance is $100,000, and in your redraw offset facility you have $20,000. Assuming that you have a 100% redraw offset facility, you will only be charged interest on $80,000.
Another great benefit of a variable interest rate is the ability to refinance your loan without incurring a substantial break fee. You might want to refinance your loan because you want to switch to a lower interest rate, you might want to borrow more for a home renovation, or you may want to consolidate your debts.
Since your interest rate is flexible, it may actually fall. If this happens, your loan repayments will drop, saving you money. However, it is important to note that you will also be exposed to the risk of increased in interest rate, which will make your loan repayments higher. No one can predict how interest rates will change in the future, so it’s harder to budget with a variable rate loan.
Choosing the best variable home loan rate
Make sure you compare variable home loans before committing to any particular lender. One way you can compare is by doing your own research and visiting comparison sites to see who offers the most competitive rate.
Another thing you can do is to ask for a key fact sheet from different lenders. A key fact sheet is a document provided by a lender that states the ongoing fees, upfront fees, interest rate and repayments on the loan. This is helpful when you compare loans with each other, because the information indicated is personalised.
Our home loan calculator is another helpful tool to use when finding for the best variable home loan rate. This gives you information on how much your repayments will be according to the lender’s interest rate. You just need to input figures such as your loan amount, interest rate, loan term, and payment frequency.
The features of the loan are just as important as the interest rate. Also, don’t forget to factor in the upfront and ongoing fees on your loan.
You can speak with our lending specialists here at loans.com.au to assist you in finding the best variable rate home loan to suit you and your financial
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