Home Loans

Standard variable loans are currently the most popular type of home loan in Australia. The interest rate of your loan will rise and fall over the period of the loan, essentially following the official rate set by the Reserve Bank of Australia and variations in funding costs. Your regular repayments pay off both the interest and some of the principal.

You may also choose a basic variable loan option, which generally offers a discounted interest rate but has fewer loan features, such as a redraw facility and repayment flexibility.

Being able to make extra repayments, however small can cut the length and overall cost of your mortgage. At the same time, basic variable loans often don’t come with a redraw facility, which removes the temptation to spend money you’ve already paid off your loan!

It’s important to remember though, that increased loan repayments due to rate rises could impact your household budget, so you need to take potential interest rate hikes into account when working out how much money to borrow. If you run a tight budget, this might not be the best option for you. You need to be disciplined around the redraw facility on a standard variable loan. If you dip into it too often, it will take much longer and cost more to pay off your loan. If you have a basic variable loan, you won’t be able to pay it off quicker or get access to money you have already repaid if you ever need it.

As the name suggests, your loan amount is split, so that one part is variable, and the other is fixed. The best part about split rate loans is that you decide on the proportion of variable and fixed. You will therefore enjoy some of the flexibility of a variable loan along with the security and certainty of a fixed rate loan. Less variance means when interest rates change, the adjustment to your household budget is not as much as it would be under a variable loan. If interest rates fall, your regular repayments on the variable portion will too and you have the additional benefit of repaying the variable part of the loan quicker if you wish.

Lenders sometimes choose to impose financial penalties if you exit the loan before the end of the fixed rate period.

You can pay into and withdraw from your home loan every month, so long as you keep up the regular required repayments. Many people choose to have their salary paid into their line of credit account. This type of loan is good for people who want to maximise their income to pay off their mortgage quickly and/or who want to maximise flexibility in their access to funds.

You can use your income to help reduce interest charges and pay off your mortgage quicker, which provides great flexibility for you to access available funds; one standout feature of this is that you can consolidate spending and debt management in a single account.

You’ll want to be a wiz with the household budgets though, because without proper monitoring and discipline you won’t pay off the principal and will continue to carry or even increase your level of debt. It’s also important to note that line of credit loans usually carry slightly higher interest rates.