This is a flexible, adjustable rate loan and is the most popular variety of loan in Australia. As the name suggests, the interest rate of a variable rate loan is not locked. It changes regularly and is linked to the Reserve Bank of Australia’s rates with the final amount determined by the RBA and individual lenders’ rates and policies. The standard variable loan can also offer features like the ability to split the loan and the right of the borrower to make more frequent payments. These and other features are available and may differ by lender.
More About Standard Variable Rate Home Loans in Australia
The standard variable rate home loan is the most popular type of home loan available in Australia. Rather than pay a loan with a fixed interest rate, borrowers who qualify for a standard variable rate loan pay an interest rate that changes regularly according to rates set by the Reserve Bank of Australia in conjunction with the fees and rates of the individual lenders. Standard variable rate loans are also attractive due to features added to these loan packages, such as the right of the borrower to increase payment amounts and frequency without penalty, the ability to take back increased repayments if needed, and the capability to split the loan if need be. To find out more about standard variable rate loans, including more on the individual features available, please fill out the contact form below.
Advantages of Standard Variable Rate Home Loans
The variation in rates is often an attractive advantage of variable rate loans. If interest rates drop according to the monetary policy of the Reserve Bank of Australia, the borrower’s payments decrease as well. Home buyers looking for a bargain often focus on this possibility of variation and how it affects payments, as opposed to a fixed rate loan, which does not change. Variable rate borrowers can take advantage of a changing economic climate in a way that borrowers with fixed rate loans cannot.
Another advantage of a standard variable rate loan is the set of features available to borrowers as part of the loan. As mentioned earlier, these features add up to a tremendous number of advantages for home buyers. Some loans penalize the borrower for making higher payments or additional payments. Standard variable loans typically waive these penalties. If a borrower does overpay, but then decides they need that money back, a “redraw” feature is typical on many standard variable loans, allowing the buyer to take back the additional payment if they need the funds. There is also a feature that allows the borrower to convert the loan to a split loan in order to take advantage of the stability of fixed rates. These are just a few of the features usually included with a standard variable rate loan. Keep in mind the cost of these features is seen in added fees during the set-up process of the loan. Borrowers are paying for these features and should definitely consider using them.
Disadvantages of Standard Variable Rate Home Loans
The standard variable loan’s biggest advantage is also its biggest disadvantage. Just as the fluctuating RBA rate can go down, it can also go up, increasing the amount of payments. Borrowers who like to plan their spending or who may not have the stomach for riding out the ever-changing market may be better served with a fixed rate loan.
As mentioned earlier, the set-up fees for this type of loan are typically higher. Like with any purchase, more features equals more cost to the consumer. If the borrower doesn’t anticipate paying the loan faster, changing the nature of the loan or using any other features a lender may make available, a basic variable home loan might make more sense.