Understanding Variable Rate Home Loans
If you're looking to achieve home ownership in Campbelltown, understanding the different home loan options available is crucial for your financial stability. A variable rate home loan is one of the most popular home loan products in Australia, offering flexibility that many borrowers find appealing.
With a variable interest rate home loan, your interest rate can move up or down throughout the life of your loan. This means your repayments can change based on market conditions and decisions made by the Reserve Bank of Australia. While this might sound uncertain, variable rate loans come packed with features that can help you build equity faster and improve borrowing capacity over time.
Key Features of Variable Rate Home Loans
Variable rate home loans typically offer more flexibility than their fixed rate counterparts. Here are the standout features you should know about:
Offset Account Benefits
Many variable rate home loan packages include access to an offset account or linked offset facility. This is essentially a transaction account connected to your home loan. The balance in your offset account reduces the loan amount on which you pay interest.
For example, if you have a home loan of $500,000 and $30,000 sitting in your mortgage offset account, you'll only pay interest on $470,000. This feature alone can save you thousands in interest over the life of your loan while keeping your money accessible for emergencies.
Making Extra Repayments
One of the most valuable home loan features of variable rate products is the ability to make extra repayments without penalty. Whether you receive a work bonus, tax return, or simply want to pay more each month, you can reduce your loan amount faster and potentially shave years off your loan term.
This flexibility to build equity quickly is particularly beneficial for Campbelltown residents looking to secure their future through property ownership.
Redraw Facilities
Most variable rate home loans include a redraw facility, allowing you to access any extra repayments you've made above the minimum requirement. This gives you the security of reducing your debt while maintaining access to those funds if needed.
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Comparing Variable Rates to Other Options
When you apply for a home loan, you'll encounter several home loan options including fixed rate, split rate, and variable rate products. Understanding how these compare helps you make an informed decision.
Variable vs Fixed Interest Rate Home Loans
A fixed interest rate home loan locks in your rate for a set period (typically 1-5 years), providing certainty with your repayments. However, fixed rate loans generally lack the flexibility of variable loans - you usually can't make substantial extra repayments or access offset accounts.
If your fixed rate is expiring, switching to a variable rate might provide the flexibility you've been missing.
Split Loan Options
Can't decide between variable and fixed? A split loan allows you to divide your loan amount between both. You might put 60% on a variable interest rate and 40% on a fixed interest rate, giving you some certainty while maintaining flexibility.
Variable Rate Home Loan Benefits
Let's look at the specific home loan benefits that make variable rates attractive:
- Flexibility to make unlimited extra repayments - Pay off your loan faster without penalties
- Access to offset accounts - Reduce interest while keeping funds available
- Potential for rate decreases - If variable home loan rates drop, so do your repayments
- Portability - Many variable rate products offer portable loan features, allowing you to transfer your loan to a new property without refinancing costs
- Ability to switch loan types - Convert to fixed rate or adjust your loan structure as circumstances change
Interest Rate Discounts and Rate Reductions
When comparing rates across different lenders, you'll notice that many offer interest rate discounts for various reasons. You might receive rate discount options for:
- Being a new customer
- Maintaining a lower loan to value ratio (LVR)
- Having your salary deposited into an account with the lender
- Bundling multiple products
These discounts can significantly impact your current home loan rates and overall repayment amount. When you compare rates, make sure you're looking at the comparison rate, which includes fees and charges, not just the advertised variable rate.
Owner Occupied vs Investment Properties
Variable rate loans are available for both owner occupied home loan purposes and investment properties. Owner occupied rates are typically lower than investment loan rates, reflecting the lower risk to lenders.
If you're looking to invest in property in the Campbelltown area, understanding how interest rates differ between these loan purposes is important for calculating home loan repayments accurately.
Repayment Structures: Principal and Interest vs Interest Only
With variable rate loans, you can choose between principal and interest repayments or interest only periods:
- Principal and interest: Your repayments cover both the loan amount and interest, gradually reducing your debt
- Interest only: For a set period (usually up to 5 years), you only pay the interest, keeping repayments lower but not reducing the loan amount
Interest only periods can be useful for investors or those who need lower repayments temporarily, but remember that eventually, you'll need to start paying principal and interest, which will increase your repayments.
Getting Started with Your Home Loan Application
Whether you're seeking your first home loan or looking at refinancing your existing loan, comparing home loan products from banks and lenders across Australia gives you access to more competitive variable rate options.
Get Approved works with multiple lenders, allowing Campbelltown clients to access home loan options from banks and lenders across Australia. This means you can compare rates and home loan packages without approaching each lender individually.
Home Loan Pre-approval
Before you start house hunting, consider getting Home Loan pre-approval. This shows you:
- How much you can borrow based on your income and expenses
- Your potential borrowing capacity
- What lowest rates you might qualify for
- Whether you'll need to pay Lenders Mortgage Insurance (LMI)
Understanding your loan to value ratio (LVR) helps determine if you'll need to pay LMI. Generally, if you're borrowing more than 80% of the property value, you'll need to factor this insurance into your costs.
Making the Right Choice for Your Situation
Choosing between variable rate, fixed rate, or split rate comes down to your personal circumstances, risk tolerance, and financial goals. Variable rates suit borrowers who:
- Want flexibility to make extra repayments
- Value access to offset account features
- Are comfortable with potential rate changes
- Plan to pay off their loan faster
- May need to access equity or refinance in the near future
For first home buyers in Campbelltown, variable rate loans can provide the flexibility needed as your financial situation evolves in those early years of home ownership.
Get Approved has experienced mortgage brokers in Campbelltown who understand the local property market and can help you compare current home loan rates across multiple lenders. We'll work with you to find home loan products that align with your goals and financial situation.
Call one of our team or book an appointment at a time that works for you to discuss which variable rate home loan features would work for your situation.
