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Follow on Google News | The Complete Guide for Understanding Variable Interest Rate Home LoanVariable interest rate home loan is a very popular product among home buyers. But, before choosing a loan package, you must understand its features, advantages & disadvantages. It will enable you to choose a loan that is perfect for your situation.
By: Singh Finance Pty Ltd A variable interest rate home loan (sometimes also referred to as a "floating" or "adjustable" Who is Suited to a Variable Interest Rate Home Loan? This type of home loan is a perfect fit for: >> First-time home buyers who just want a home loan product that is simple and not confusing to manage >> People who just want to stay settled and are not willing to move whether in their work, home, personal life or they are not willing to move to another lender What Should I Consider When Choosing the Loan? When choosing it, you should always research and consider the following terms & conditions, being offered by the many lenders/credit providers: >> Treat any "honeymoon" interest rate offers with caution, and remember to always check whether the discount rate applied to the variable rate is a set amount below whatever the standard variable is >> Remember that low rate home loans are not always the best choice >> Try to pick a loan term that suits your finance >> Decide on what matters most to you (e.g. does it meet your financial goals?) What are the Features of a Variable Interest Rate Home Loan? You must know all the below mentioned features of the loan package so you can maximise the benefits: >> Take advantage of falling "interest rates" when the Reserve bank decides to drop their official rates >> Make unlimited "extra repayments" each month so you can pay off your home loan faster >> Take advantage of "redraw facilities" so you can withdraw any extra payments you have made on top of your normal repayment amounts if you need the cash >> Take advantage of a 100% offset account What are the Advantages and Disadvantages? There are many advantages of choosing the loan package such as: >> Flexibility: >> Lower repayment option: As the interest rate varies with that of the market index, if the rate falls, the amount of repayment also becomes lower. >> Ability to pay off the loan faster: This loan type also has the option of enabling you to pay an extra repayment as advance towards the loan. Thus, every month, if you pay an extra amount in addition to your minimum payment amount, you can repay the loan faster. >> Helps in Budgeting: As this loan gives you the option of weekly, fortnightly or monthly repayment, you can maintain your budget accordingly. >> Redraw Facility option: This loan type gives you the option of redrawing the additional amount you have made towards the repayment, in addition to the minimum repayment amount. While the loan has a lot of upsides, it does have some disadvantages, such as: >> Variable rate is subject to fluctuations: >> Repayment may become more: So if the interest rate rises, the amount of monthly repayment also becomes more and it may become more than the amount you can afford. >> Redraw facilities can be subject to limitations, including minimum withdrawal amounts allowable and may also include redraw fees >> You cannot arrange a rate lock >> You cannot pay Interest in Advance in some circumstances >> This loan type offers fewer features than the general loans What are the Benefits in Making Extra Repayments? The benefits available to you in making the extra repayments towards your variable interest rate home loan are best illustrated in the following example. The example assumes that you are willing to contribute an additional amount of $200 towards your weekly repayments: Loan Amount: $530,000 Normal Loan Term: 30 years Interest Rate: 5.00% Repayment Frequency: weekly Normal Weekly Repayment: $656 Extra Weekly Repayment: $200 Interest saved by making extra repayments: $217,815 Time in years saved, by making the extra repayments: 11 years 10 months Now that you have thorough information of the variable interest rate home loan, you can discuss about it without your finance broker and find the perfect home mortgage loan. http://www.singhfinance.com.au is the ideal finance brokerage firm of every Australian home buyer. Call on 0424 190 908 for quick approval on 0 savings home loans. You can even enquire online for different loan packages like cheap commercial loans and quick short term second mortgage. End
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