What is a Basic Variable Loan?
Before you have even decided on the type of home loan you need or how much you want to borrow you will have realised that there are a multitude of choices available when it comes to choosing your loan. A basic variable loan is just one of these.
Basic variable rates have a few things in common across all Australian lenders, such as:
An interest rate which fluctuates with the official cash rate.
In times of rising interest rates the interest on your home loan may also increase.
When official rates are being cut you can also enjoy reduced interest charges on your home loan.
A basic variable rate will be the lowest on the market.
A basic variable rate loan has few other features which is why it is so affordable.
Competition between basic variable rate loans means that there are some great deals on offer. A variable rate loan allows you flexibility. A variable interest rate will usually be lower than a fixed interest rate and so your repayments are likely to be slightly lower too. However, if there is an interest rate change your repayments are likely to fluctuate with these movements. You will also be able to make additional repayments to pay off your loan faster, and a variable interest rate home loan can be easier to refinance.
A variable interest rate home loan may require more careful budgeting. While interest rates may be lower at the moment you should not assume that they will be this low forever. Therefore if you choose a variable-rate home loan you will need to consider whether your budget can handle interest rate rises. Often it is a good idea to pay more each month so that you get used to making a higher repayment if rates do go up.