Looking for a home loan comes with many new terms and concepts, one of which is variable rate home loans. You may find variable rate, variable interest rate or standard variable rate, or similar terms used during your research on home loans, but what does it actually mean?
Understanding what a variable rate home loan is, the pros and cons, how a variable home loan rate is different to a fixed rate, and how to look for the best variable home loan rate will help you with your home loan research.
Variable home loan rates are interest rates that may change with the lending market (e.g. when the official RBA cash rate changes) or when lenders make a business decision to change the rate. This means that your repayments can increase or decrease throughout your loan term, depending on what is happening with interest rates or the lending market.
The most significant difference between variable home loan rates and fixed home loan rates is the difference between flexibility and certainty. With a variable rate home loan, you have the flexibility to refinance or pay out your home loan at any time. However, with a fixed-rate home loan, you’d have to pay break costs if you refinanced or paid out your mortgage during the fixed period.
Also, if you want to make additional repayments with a variable rate home loan, you’ll likely have unlimited extra repayments. A fixed-rate home loan will often put a cap on how much additional funds you can add to your home loan.
When shopping for a variable home loan rate, you may come across the term standard variable rate (SVR) and wonder what it is. The SVR is a baseline or benchmark rate the lender will use to calculate the interest rates they offer customers.
Some lenders will offer this rate as a home loan that includes all the benefits and features you can find with a variable rate home loan. Other lenders may use the SVR as a benchmark to apply discounts to calculate the range of variable rate home loans offered to customers.
Finding the best variable home loan rate in the market means doing some research and not getting swayed by the marketing. When you’re looking for the best variable home loan rates, be sure to double-check that the rate isn’t an introductory or honeymoon rate which will increase after the introductory period.
You also need to be aware of any additional features that come with a variable rate home loan. There could be an account keeping fee for that offset account? Once you’ve done the research to get a proper understanding of what you’re looking for, check out Yard’s variable rate home loans here.