Variable rate home loans remain one of the most popular home loan options for Melbourne property buyers. Unlike fixed interest rate home loans, variable rate products offer flexibility and the potential to benefit from decreasing interest rates. Understanding how variable interest rates work and the loan terms available can help you make an informed decision about your home loan application.
Understanding Variable Rate Home Loans
Variable home loan rates fluctuate based on market conditions and lender decisions. When the Reserve Bank of Australia adjusts the official cash rate, lenders typically pass these changes onto borrowers through their variable interest rate products. This means your home loan repayments can increase or decrease over the life of your loan.
Variable rate home loan packages often include additional home loan features that may not be available with fixed interest rate home loan products:
• Mortgage offset accounts to reduce interest payments
• Redraw facilities for accessing extra repayments
• Portable loan features for property changes
• No restrictions on additional repayments
• Ability to switch to fixed rate options
Key Variable Rate Loan Terms to Consider
When comparing variable rate home loan products, several loan terms will impact your borrowing experience:
Interest Rate Discounts: Many lenders offer rate discounts off their standard variable rate. These interest rate discounts can be based on your loan amount, loan to value ratio (LVR), or your relationship with the lender.
Offset Account Features: A linked offset account can significantly reduce your interest payments. The funds in your offset account are offset against your loan balance, meaning you only pay interest on the difference.
Repayment Options: Variable rate loans typically offer both principal and interest and interest only repayment structures. Interest only repayments may be suitable for investment property loans, whilst principal and interest repayments help build equity in your property.
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Variable vs Fixed vs Split Rate Options
When exploring home loan options, you'll encounter three main interest rate structures:
Variable Rate: Your interest rate and repayments change with market movements. This option provides flexibility and access to additional home loan features.
Fixed Rate: Your interest rate remains unchanged for a set period, typically one to five years. This provides certainty in your repayments but may limit access to certain loan features.
Split Rate: This option allows you to divide your loan amount between fixed and variable portions, providing both stability and flexibility.
Maximising Variable Rate Home Loan Benefits
To make the most of variable rate home loan terms, consider these strategies:
- Utilise Offset Accounts: Maintain funds in your linked offset account to reduce interest charges
- Make Additional Repayments: When interest rates are low, consider making extra repayments to build equity faster
- Monitor Rate Changes: Stay informed about interest rate movements and how they affect your repayments
- Review Loan Terms Regularly: Ensure your current home loan rates remain competitive through regular loan health checks
Loan to Value Ratio and Variable Rates
Your loan to value ratio (LVR) significantly impacts the variable interest rate you'll receive. Lower LVR loans often qualify for better interest rate discounts. If your LVR exceeds 80%, you'll typically need to pay Lenders Mortgage Insurance (LMI), which protects the lender but adds to your borrowing costs.
Maintaining a lower LVR can improve your borrowing capacity and access to preferred home loan rates. This is particularly relevant for first home buyers who may have limited deposit funds.
Accessing Variable Rate Home Loans in Melbourne
Melbourne's property market offers diverse opportunities for both owner occupied home loans and investment property purchases. When you apply for a home loan, lenders will assess your borrowing capacity based on your income, expenses, and financial commitments.
The application process for variable rate home loans typically involves:
• Home loan pre-approval to establish your borrowing capacity
• Property valuation to determine LVR
• Income and expense verification
• Assessment of existing debts and commitments
• Final loan approval and settlement
Variable rate home loan products provide flexibility for Melbourne property buyers seeking to achieve home ownership whilst maintaining access to loan features that can help secure their financial future. Whether you're purchasing your first home or looking to invest in property, understanding variable rate loan terms will help you make informed decisions about your home loan packages.
When calculating home loan repayments, remember that variable rates can change, affecting your ongoing financial commitments. Consider your long-term financial stability and ability to manage potential rate increases when choosing variable rate products.
Working with experienced mortgage brokers can help you compare rates and access home loan options from banks and lenders across Australia. This ensures you find suitable home loan products that align with your financial goals and circumstances.
Call one of our team or book an appointment at a time that works for you to explore variable rate home loan options tailored to your Melbourne property goals.