Variable Rate Home Loans — Fact Sheet
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This fact sheet is reproduced for general information purposes only.
It is an industry-standard explanatory document and has not been authored by Model Mortgages.
It does not provide personal advice.
Variable rate home loans
Variable rate home loans are popular and are offered by most lenders.
With a variable rate loan, the interest rate you are charged can fluctuate in line with market interest rate changes. Because of this, your home loan repayments may also vary.
Generally, the variable interest rate on your loan will move in line with the market rate set by the Reserve Bank of Australia (RBA). However, lenders set their own interest rates and may change them at any time.
What’s good about a variable interest rate loan?
- You can make extra repayments to pay off your home loan sooner. Making repayments above your minimum amount can reduce the term of your loan and save interest over time.
- A redraw facility is usually available, allowing you to withdraw extra repayments if you need access to the funds. Some lenders apply minimum redraw limits.
- You can use an offset account to reduce the interest you pay. An offset account is a transaction account linked to your home loan, where the balance is offset daily against your loan balance before interest is calculated. This reduces the principal amount on which interest is charged.
- Flexible repayment options are available, allowing you to make repayments weekly, fortnightly, or monthly. This can help align repayments with your income and budgeting preferences.
- You may be able to split your loan to gain more control over interest rate exposure. This allows part of the loan to be fixed for a period (often up to five years), while the remainder stays on a variable rate.
- Variable rate loans generally allow you to switch lenders more easily. Home loans advanced on or after 1 July 2011 do not usually attract early repayment penalties or exit fees. Discharge fees and government charges may still apply.
Things to consider
- With a variable rate loan, your repayments will increase if interest rates rise. You should consider how potential rate increases may affect your financial position and longer-term goals.
- A basic or “no frills” variable rate loan typically has fewer features, such as no offset account. These loans often attract lower interest rates and fees and may suit borrowers who prefer a simple loan structure.
- A standard variable rate loan usually offers greater flexibility, including redraw and offset facilities. These features are often part of a packaged loan arrangement that includes additional products and benefits for an annual fee.
What is a home loan package?
A home loan package is a bundled suite of products attached to a home loan.
For an annual fee, the package may include:
- a discount on the variable interest rate
- fee waivers on transaction or offset accounts
- a credit card with an annual fee waiver
- discounts on insurance products
Additional things to consider for loan packages
- A minimum loan amount is usually required to qualify for a home loan package (often $250,000 or more).
- Annual package fees typically range from $350 to $750, depending on the lender and the type of package.
- A credit card is usually included. If you do not need the card, its limit may still affect your borrowing capacity and could result in additional debt if used.
Disclaimer
The information provided in this fact sheet is not legal, taxation, or financial planning advice.
It has been prepared without considering your objectives, financial situation, or needs.
All loan products are subject to lender criteria and approval. Fees, terms, and conditions apply.
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