What is a Basic Variable Home Loan?
A Basic Variable Home Loan is a no-frills home loan. It comes with a lot of crafty features to help you manage the loan and pay it off. And like with any variable home loan, the interest rates can change based on the economic climate.
The pros and cons of a Basic Variable Home Loan
- Pro – Your rate can go down: If interest rates fall, then the rate on your variable home loan can fall too. When this happens, you might have less interest to pay off and be on the fast-track towards owning your home outright.
- Pro – Handy loan features: Some of the features to help you pay your loan off include no monthly or annual fees, free redraw2 and more.
- Pro – Lots of flexibility: The Basic Variable Home Loan is more flexible than a fixed rate one because it doesn't have restrictions on repayments, and you can switch or break out of it early without incurring break costs. If flexibility is what you’re after, this could be the loan for you.
- Con – Your interest rate can go up: When interest rates increase, there’s a chance the rate on your loan will rise too.
- Con – No certainty with repayments: You (and your budget) will have to be flexible to accommodate rate changes when they happen. But you can be clever about the way you manage your money during these changes by making the most of your loan’s features, such as making extra repayments and accessing them with free redraw.2
What is a Fixed Rate Home Loan?
A Fixed Rate Home Loan allows you to lock in a set interest rate for a period of time, which is called a fixed term. At the end of the fixed term, you can lock in a new rate for another fixed term or switch to a variable loan.
The pros and cons of a Fixed Rate Home Loan
- Pro – Your rate stays the same during the fixed rate period: Your loan (and finances) won’t be susceptible to rate rises. This can work in your favour, as the rate you lock in today might be better than further down the track.
- Pro – You have repayment certainty: For the length of your fixed term, your loan repayments will stay the same. This can make budgeting and managing your money a lot easier, as you’ll know how much your repayments will be each month.
- Con – There isn’t much flexibility: If rates drop, your rate won’t change. And if you want to refinance to get a lower interest rate, you’re likely to incur a break fee if you’re switching loans during the fixed term.
- Con – Fewer features: All home loans come with features to help you pay off the loan quickly. But fixed rate home loans tend to have fewer features than their variable counterparts, such as capped extra repayments during the fixed rate period.
What is an Offset Variable Home Loan?
An Offset Variable Home Loan allows you to link your home loan to one or up to six offset accounts.1 The offset account is a transaction account that helps reduce your overall interest repayments by offsetting your home loan balance. So, the higher your ongoing balance is in your offset account, the less interest you pay.
This loan has all the same features as the Basic Variable Home Loan, such as unlimited extra repayments and free redraw, but with the added bonus of multi-account offset. Remember, like with a variable loan, the rates can change depending on the economic climate.
The pros and cons of an Offset Variable Home Loan
- Pro – You can lower the interest charged through saving: If you have additional streams of income, then you can deposit extra funds into your offset account (or accounts) to lower the interest you owe.
- Con – The loan works better with a higher balance in the account: Because this type of loan relies heavily on your offset account, it works best if you have a healthy balance in your account.
What is a split home loan?
A Split Home Loan is when one part of your loan has a variable rate and the other a fixed rate. For example, 40 per cent of your loan might have a fixed rate, while the remaining 60 per cent will be at a variable rate.
The pros and cons of a split home loan
- Pro – Best of both worlds: If interest rates increase, your variable rate will go up, but the fixed portion of your loan will remain the same.
- Pro – Flexibility in how you can split the loan: Most lenders will allow you to split the home loan at whatever ratio you want, as long as the minimum loan limit requirement is met, which is typically $10,000 or more.
- Con – You won’t fully benefit from rate drops: This is because part of your loan will be at a fixed rate.
- Con – Break cost on the fixed portion: There will most likely be a break cost that’s charged on the fixed portion of your loan if you decide to refinance or pay off the loan early than the loan term.
- Con – You’ll have two different repayments: One repayment date will be for the fixed portion of your loan and the other for the variable portion.
What should you consider when choosing a loan?
There are some things all loans have that you should consider when deciding which one to refinance to.
Interest rate and comparison rate
Ensure the loan you switch to has the lowest rate possible. Even a slight difference can help you save big in the long term. But make sure to check the comparison rate, which shows the overall cost of your loan and is inclusive of any establishment or ongoing fees.
Features
It’s always a good idea to check out the features of the loans you’re thinking of switching to. Our loans come with plenty of helpful features so you can manage your loan and pay it off quickly.
Payment frequency
Decide how often you want to make repayments on your loan. Do you want pay monthly, fortnightly, or even weekly? The answer depends on your personal and financial situation. To help you get an idea of how much you’ll pay on your loan based on a certain repayment schedule, check out our repayments calculator.
Loan term
The loan term is how long you have to pay off the loan. Depending on what you can afford, the size of your loan term can have different effects. Short loan terms might mean you have higher repayments and you’ll pay less interest. Longer terms make your repayments a bit lower, but there’s a strong chance of paying more in interest.