The Benefits Of Securing A Variable Rate Home Loan

Securing a home loan can be an intimidating process for many people, particularly if you're a first home buyer. Many borrowers are unsure of which loan type is best for their needs; variable rate or fixed rate. In this blog post, we'll look at the benefits of a variable rate home loan, which can provide more flexibility and cost savings than a fixed rate home loan. We'll discuss the types of loans available, how to compare them, and the potential savings that can be achieved through a variable rate loan. We'll also discuss how to determine if a variable rate loan is right for you. So, if you're looking to purchase a home and want to understand the benefits of a variable rate home loan, read on!

1.Flexibility with Repayments

When it comes to taking out a home loan, one of the benefits of opting for a variable rate loan is the flexibility it provides when it comes to making repayments. With a variable rate home loan, you can make extra payments without incurring any penalty fees. This means that if you have some extra cash, you can use it to pay off a large chunk of the loan and reduce your overall interest payments.

It is important to remember, however, that while it is possible to make extra repayments, it is not always advisable. This is especially true if you have a variable rate loan, as the interest rate can change without warning. If the rate rises, then you may find yourself unable to make the same extra payments that you had previously made.

It can be beneficial to make extra repayments, particularly if you are able to do so when interest rates are low. This can help you to pay off your loan more quickly and reduce the overall cost of the loan. However, it is important to ensure that you have a financial buffer in place in case interest rates rise and you are unable to make the same extra payments.

Ultimately, when it comes to making extra repayments on your variable rate home loan, it is important to consider your current financial situation. If you have a financial buffer and you can make extra repayments without compromising your other financial commitments, then it can be a great way to reduce the cost of your loan. However, if you are unable to do so without affecting your other financial commitments, it is best to approach your loan provider to discuss your options.

2.Low Interest Rates

One of the great benefits of opting for a variable rate home loan is the low interest rates currently available. The Reserve Bank of Australia (RBA) has cut the cash rate to a record low, and this is reflected in the variable rate home loan offerings on the market.

The lower interest rates mean that your monthly repayments will be lower, so you can save money each month. This could be used to pay off your loan faster, or to invest in other things that could benefit you and your family.

It's important to remember that, while variable rate home loans offer lower interest rates than fixed rate home loans, they also come with some risk. As the interest rates can go up as well as down, you could end up paying more than you bargained for. This risk should be weighed up and considered carefully when deciding whether a variable rate home loan is right for you.

It's also important to consider other factors when deciding which home loan is right for you. These can include the fees and charges associated with the loan, the repayment schedule, and the ongoing serviceability of the loan.

In summary, low interest rates on variable rate home loan offerings can be a great benefit. However, it's important to consider the risks as well as the benefits before committing to a loan. Be sure to research the different options available and make sure the loan is right for your circumstances.

3.Opportunity to Make Additional Repayments

Making additional repayments can be a great way to reduce the total amount of interest you will pay on a variable rate home loan. This is because when you make a repayment, the portion of your loan principal that is reduced is not subject to interest.

It is important to note that most lenders in Australia allow additional repayments however, they generally come with some conditions. Generally, you’re allowed to make extra repayments of up to $10,000 per year without penalty, however if you exceed this amount you may be charged a fee. So if you’re considering making additional repayments, you should ensure that you read the product disclosure statement carefully before you proceed.

It is also important to consider that if you are making additional repayments on a variable rate loan, you may not be able to access the extra money you have put in if you need it unexpectedly. This is because lenders may not allow you to redraw the additional repayments you have made unless you have specifically requested for this facility.

Therefore, if you are planning to make additional repayments on a variable rate home loan, it is important to consider your long-term financial goals. If you have the capacity to make additional repayments and you are comfortable with the potential risk of not being able to access the additional funds, then making additional repayments could be a great way to save on interest payments and reduce the total amount that you owe.

4.Potential Savings on Interest Payments

When choosing a home loan, one of the most important factors to consider is the potential savings on interest payments. A variable home loan offers borrowers the potential to save on interest payments compared to a fixed rate loan.

When interest rates are low, borrowers can benefit from a variable rate home loan as they can take advantage of the lower rates and the potential to make extra repayments. By making extra repayments, borrowers can reduce the total amount of interest paid on the loan over the life of the loan.

Borrowers can also make additional repayments, up to a specified limit, without incurring any additional fees or costs. This means that borrowers can reduce the loan principal, and as a result, pay less interest over the life of the loan.

When interest rates start to rise, borrowers can opt to switch to a fixed rate home loan. This will provide them with certainty that their repayments will not increase in the future, even if the interest rates increase.

Ultimately, borrowers should think about their financial situation and future plans when considering the benefits of a variable rate home loan. By understanding their own situation, borrowers can make an informed decision about the type of loan that is best suited to their needs.

We understand you and we want to help

At Ello Lending, we believe that a variable rate home loan can provide you with the flexibility and freedom you need to make your mortgage dreams a reality. We are here to help you every step of the way and our team of experienced brokers can answer any questions you have about variable rate home loans. Contact us today to find out how we can help you secure the home loan that best fits your needs.