The Complete Guide For Understanding Variable Interest Rate Home LoanThe Complete Guide For Understanding Variable Interest Rate Home Loan

What is a Variable Interest Rate Home Loan?

A variable interest rate home loan (sometimes also referred to as a "floating" or "adjustable" rate home loan) is a very popular product in the lending market and a very competitive product offered by most of the lenders/credit providers.

Who is Suited to a Variable Interest Rate Home Loan?

This type of home loan is a perfect fit for:

>> First-time home buyers who just want a home loan product that is simple and not confusing to manage

>> People who just want to stay settled and are not willing to move whether in their work, home, personal life or they are not willing to move to another lender

What Should I Consider When Choosing the Loan?

When choosing it, you should always research and consider the following terms & conditions, being offered by the many lenders/credit providers:

>> Treat any "honeymoon" interest rate offers with caution, and remember to always check whether the discount rate applied to the variable rate is a set amount below whatever the standard variable is

>> Remember that low rate home loans are not always the best choice

>> Try to pick a loan term that suits your finance

>> Decide on what matters most to you (e.g. does it meet your financial goals?)

What are the Features of a Variable Interest Rate Home Loan?

You must know all the below mentioned features of the loan package so you can maximise the benefits:

>> Take advantage of falling "interest rates" when the Reserve bank decides to drop their official rates

>> Make unlimited "extra repayments" each month so you can pay off your home loan faster

>> Take advantage of "redraw facilities" so you can withdraw any extra payments you have made on top of your normal repayment amounts if you need the cash

>> Take advantage of a 100% offset account

What are the Advantages and Disadvantages?

There are many advantages of choosing the loan package such as:

>> Flexibility: It has some flexible features like having options of making additional payments, low introductory interest rates or redrawing facility.

>> Lower repayment option: As the interest rate varies with that of the market index, if the rate falls, the amount of repayment also becomes lower.

>> Ability to pay off the loan faster: This loan type also has the option of enabling you to pay an extra repayment as advance towards the loan. Thus, every month, if you pay an extra amount in addition to your minimum payment amount, you can repay the loan faster.

>> Helps in Budgeting: As this loan gives you the option of weekly, fortnightly or monthly repayment, you can maintain your budget accordingly.

>> Redraw Facility option: This loan type gives you the option of redrawing the additional amount you have made towards the repayment, in addition to the minimum repayment amount.

While the loan has a lot of upsides, it does have some disadvantages, such as:

>> Variable rate is subject to fluctuations: The interest rate is subject to fluctuations and can either rise or fall at any time during the period of the loan. Changes in the interest rate are at the discretion of a lender and they are meant to be broadly in line with market conditions

>> Repayment may become more: So if the interest rate rises, the amount of monthly repayment also becomes more and it may become more than the amount you can afford.

>> Redraw facilities can be subject to limitations, including minimum withdrawal amounts allowable and may also include redraw fees

>> You cannot arrange a rate lock

>> You cannot pay Interest in Advance in some circumstances

>> This loan type offers fewer features than the general loans

What are the Benefits in Making Extra Repayments?

The benefits available to you in making the extra repayments towards your variable interest rate home loan are best illustrated in the following example. The example assumes that you are willing to contribute an additional amount of $200 towards your weekly repayments:

Loan Amount: $530,000

Normal Loan Term: 30 years

Interest Rate: 5.00%

Repayment Frequency: weekly Normal

Weekly Repayment: $656

Extra Weekly Repayment: $200

Interest saved by making extra repayments: $217,815

Time in years saved, by making the extra repayments: 11 years 10 months

Now that you have thorough information of the variable interest rate home loan, you can discuss about it without your finance broker and find the perfect home mortgage loan.

by Frank Zelasko
References and Bibliography
Singh Finance is the ideal finance brokerage firm of every Australian home buyer. Apply for quick approval on home loans for the self-employed. You can even enquire online for different loan packages like cheap car finance and quick development finance for builders.
Rated:NR/0 Votes
4 Views
Add To My Article Reading List
Add To My Article Reading List
Print Article
Print
More Article By Frank Zelasko
More Article by Frank Zelasko
Share
More Articles From Real Estate
More Articles From Real Estate
Related Articles and Readings
How Variable Interest Rates Work By: John Mussi
Variable interest rates are always related to the Bank of England base rate, which is the interest rate that is set by the Bank of England every month. Because the Bank of England base rates will rise and fall periodically, repayment costs of loans based upon these rates will also ...
How to Tell if a Variable Rate Mortgage is for You By: Iwona Kurecka
One of the most important choices any mortgage shopper must make is whether to choose a fixed rate or a variable rate mortgage. This can be a more difficult decision that it may seem, primarily because the right decision can hinge on the knowing the future direction of interest ...
Mortgage in the United Kingdom By: John Mussi
The mortgage market in the United Kingdom is considered one of the most innovative and viable in the world. Compared to other countries, intervention in the market by state-funded entities and borrowing is controlled by either mutual organizations or proprietory lenders is limited or none at all.The market got deregulated ...
Variable Rate Mortgages Setting The Standard By: Joseph Kenny
Here's the first mortgage term you should learn ? Standard Variable Rate, or SVR. This is the interest rate you will be paying on the total amount you are borrowing. It is usually expressed as a percentage, and is different from an APR (Annual Percentage Rate). An APR includes all ...
Residential Mortgages Locating Funds in Residence By: Aileene Woul
I bet you had the same reaction when you heard 'residential mortgages? ? you probably thought they are some new strain of mortgages? Well residential mortgages are our good old mortgages re-packaged with a different name. That makes residential mortgages one of the most reliable, flexible, innovative loan products to ...
The information provided in this article and/or the comments is the sole responsibility of their respective authors and does not necessarily reflect the opinion of ezinepost.com. ezinepost.com  does not endorse any article and/or comments published by our web users unless otherwise noted. 

Member Panel

login to submit articles and more

StatisticsEZINEPOST.COM

  • » Active Categories: 419
  • » Active Articles:252096
  • » Active Authors:32163
  • » Active Members: 35787
  • » Statistics Updated:
    - Sat Aug 11th, 2018 01:04PM EST