When you're looking to achieve home ownership or invest in property, understanding your home loan options is crucial for your financial stability. Variable rate home loans remain one of the most popular home loan products among Australian borrowers, particularly public servants who value flexibility and potential savings.
Let's explore what makes variable interest rate home loans attractive and how their features could work in your favour as you work towards your secure future.
What is a Variable Rate Home Loan?
A variable rate home loan is a mortgage where the interest rate can move up or down throughout the life of your loan. Unlike a fixed interest rate home loan, where your rate stays the same for a set period, variable home loan rates fluctuate based on market conditions and decisions made by your lender.
This means your home loan repayments can change over time. When calculating home loan repayments, you'll need to factor in that your monthly payment might increase or decrease depending on interest rate movements.
Key Features of Variable Rate Loans
Variable rate home loans typically come with a range of home loan features that provide flexibility and control. Here are the main benefits you should know about:
1. Offset Account
One of the most valuable home loan features is the offset account. A linked offset account is a transaction account connected to your home loan. The balance in this account offsets the amount you owe on your mortgage, reducing the interest you pay.
For example, if you have a loan amount of $500,000 and $20,000 in your offset account, you'll only pay interest on $480,000. This can significantly reduce your interest payments and help you build equity faster.
2. Redraw Facility
Most variable rate home loan packages allow you to make extra repayments and then redraw those funds if needed. This feature gives you the flexibility to pay off your loan faster when you have surplus income, while still accessing those extra funds in emergencies.
3. Additional Repayments Without Penalties
Unlike many fixed rate options, variable rate loans typically allow unlimited additional repayments without penalty fees. This means if you receive a bonus or tax refund, you can put it towards your home loan to reduce your principal and save on interest.
4. Portable Loan Features
Many variable rate home loan products include a portable loan option. This means if you sell your current property and buy another, you can transfer your existing loan to the new property without breaking your loan contract or paying discharge fees.
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Book a chat with a Finance and Mortgage Brokers at Public Home Loans today.
Comparing Variable Rate with Other Options
When you compare rates and home loan options from banks and lenders across Australia, you'll encounter several structures:
Variable Rate vs Fixed Rate
While a fixed interest rate home loan provides certainty with locked-in repayments, you typically sacrifice flexibility. Variable rates often start lower than fixed rates and give you access to features like offset accounts and unlimited extra repayments.
Split Rate Loans
Can't decide between variable and fixed? A split loan divides your loan amount between both. You might choose to fix 50% of your home loan for rate certainty, while keeping 50% variable to take advantage of flexible features and potential rate decreases.
Interest Rate Discounts for Public Servants
As a public servant, you may have access to interest rate discounts that aren't available to the general public. Many lenders recognise the employment stability that comes with public sector roles and offer rate discounts accordingly.
These rate discount offers can significantly impact your home loan interest rate and overall repayments. At Public Home Loans, we specialise in identifying these opportunities for public servants and helping you access home loan options that recognise your employment status.
Owner Occupied vs Investment
Variable rate loans are available for both owner occupied home loan purposes and investment properties. Owner occupied loans typically have current home loan rates that are lower than investment loans.
If you're considering buying your first investment property, understanding how variable rates work on investment loans is important for your financial planning.
Understanding Principal and Interest vs Interest Only
Variable rate home loans can be structured as either:
- Principal and Interest: Your repayments cover both the loan principal and interest charges, helping you build equity from day one
- Interest Only: You only pay the interest charges for a set period (typically 1-5 years), which can help if you need lower repayments initially
Interest only loans can be useful for investors or those temporarily needing to improve borrowing capacity, but they don't build equity during the interest-only period.
Loan to Value Ratio (LVR) Considerations
Your loan to value ratio affects the home loan interest rate you'll receive. A lower LVR (meaning a larger deposit) typically qualifies you for the lowest rates available.
Public servants often have access to special LMI (Lenders Mortgage Insurance) waivers, which can help you borrow up to 90% of the property value without paying LMI. This is particularly valuable for those looking to achieve their first home loan without a standard 20% deposit. Learn more about LMI waivers for public servants and how they can help you.
Making the Most of Variable Rate Features
To maximise the benefits of a variable rate home loan:
- Use your mortgage offset account as your primary transaction account
- Make regular additional repayments when possible
- Consider getting loan pre-approval to understand your borrowing capacity
- Review your loan regularly with a loan health check to ensure you're still getting value
- Take advantage of any rate discounts available to public servants
Variable rate home loans offer flexibility and features that can help you pay off your mortgage faster and save thousands in interest over the life of your loan. The key is understanding how to use these features effectively and ensuring you have the right loan structure for your circumstances.
Whether you're buying your first home, buying your next home, or looking to refinance, taking time to understand variable rate loan features will help you make informed decisions about your financial stability and secure future.
Ready to explore your variable rate home loan options? Our team at Public Home Loans understands the specific needs of public servants and can help you access home loan packages designed for your situation. Call one of our team or book an appointment at a time that works for you to discuss how variable rate features could benefit your home ownership journey.
