Understanding Variable Rate Home Loans
When you're buying a home in Bundall, choosing between a variable interest rate and fixed interest rate home loan can feel overwhelming. Variable home loan rates offer flexibility that many borrowers find appealing, but understanding the terms and conditions is crucial for making an informed decision about your financial future.
A variable interest rate means your home loan interest rate can change during the life of your loan. Unlike fixed interest rate home loans, where your rate stays the same for a set period, variable rates move up and down based on market conditions and your lender's decisions.
Key Features of Variable Rate Loans
Variable rate loans come with several features that can benefit borrowers:
• Rate flexibility: Your interest rate can decrease when market conditions improve
• Additional repayments: Most variable loans allow extra payments without penalties
• Offset account options: Link a transaction account to reduce interest charges
• Redraw facilities: Access extra payments you've made when needed
• Loan portability: Transfer your loan to a new property more easily
How Variable Rates Affect Your Loan Amount
When calculating home loan repayments, variable rates add an element of uncertainty. Your monthly payments can change when your lender adjusts rates. This affects your borrowing capacity and the total loan amount you can manage comfortably.
Lenders assess your financial situation based on your ability to service payments at current rates, plus a buffer. This assessment considers your income, expenses, existing debts, and the loan to value ratio (LVR) of your intended purchase.
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Book a chat with a Finance & Mortgage Broker at Living Home Loans today.
Interest Rate Discounts and Variable Loans
Many lenders offer interest rate discounts on their standard variable rates. These discounts might depend on:
- Your LVR percentage
- The size of your loan amount
- Your banking relationship
- Professional package memberships
- Whether you're a new customer
These discounts can significantly impact your repayments over the life of your loan. However, remember that lenders can change these discounts, and the standard rate itself can move independently.
The Application Process for Variable Rate Loans
When applying for a home loan with a variable rate, the application process involves several steps:
Your lender will require bank statements, income verification, and details about your intended property purchase. They'll assess your borrowing capacity and determine if you need lenders mortgage insurance (LMI) based on your deposit size and loan amount.
Getting pre-approved gives you clarity about your budget before you start seriously looking at properties. Home loan pre-approval with a variable rate provides flexibility, as you're not locked into a specific rate until settlement.
Comparing Variable vs Fixed Options
While this article focuses on variable rates, it's worth understanding how they compare to fixed options:
Variable Rate Benefits:
• Potential for rate decreases
• Flexibility with additional payments
• Access to offset accounts
• No break fees for early repayment
Considerations:
• Rates can increase
• Repayment amounts may change
• Budgeting requires flexibility
Making the Most of Variable Rate Features
To maximise the benefits of a variable home loan:
• Consider an offset account to reduce interest charges using your everyday banking
• Make additional repayments when your financial situation allows
• Review your loan regularly as your circumstances change
• Stay informed about property market conditions that might affect rates
Access to Multiple Lenders
Working with a mortgage broker gives you access to home loan options from banks and lenders across Australia. Different lenders offer varying variable rates, features, and terms. This variety means you can find home loan options that align with your specific needs and financial goals.
Each lender has different criteria for loan approval, LVR requirements, and approaches to LMI. A broker can help you understand which lenders suit your situation and guide you through their streamlined application processes.
Building Home Equity with Variable Rates
Variable rate loans can help you build home equity faster when rates are favourable and you can make additional payments. The flexibility to pay more when your budget allows, combined with features like offset accounts, can significantly reduce your loan term and total interest paid.
As Bundall's property market evolves, your home equity position will change. Variable rate loans provide flexibility to adapt your strategy as your equity grows and your financial situation develops.
Choosing the right variable rate home loan requires careful consideration of your financial situation, future plans, and risk tolerance. The flexibility these loans offer can be valuable, but understanding all terms and conditions ensures you make a decision that supports your long-term financial wellbeing.
Call one of our team or book an appointment at a time that works for you to discuss your variable rate home loan options.
