Standard Variable Rate Home Loan Tips And Tricks

Standard Variable Rate Home Loan

The Standard Variable Rate loan is the most common type of home loan. The interest rate that applies to the loan is subject to change, depending on the official rates set by the Reserve Bank rate and the prevailing market conditions. If the rate is increased, so do the amount of your regular loan repayments. If the rate falls, your repayments will be accordingly reduced.
This type of loan is the most flexible and may include optional features such as the ability to make extra repayments, to split the loan, or to redraw extra repayments made.

Basic Variable Rate Home Loan

A Basic Variable Rate loan is usually a “no frills” version of the Standard Variable Loan, good for the budget conscious borrower. It generally offers a lower interest rate, but with less flexibility and fewer features than the Standard Variable roan. In some cases, there will also be more restrictions on this type of loan, with higher fees charged for greater flexibility. As with the Standard Variable Rate, the Basic Variable Rate is subject to official and market interest rate changes.

Fixed Rate Home Loan

The Fixed Rate Loan offers one key advantage over Variable Rate loan types: the certainty that your loan repayment amount each month will not change, whatever is happening in the market or to official rates. Fixed Rate loans are based on a set interest rate for a pre-determined period of time that might run from 6 months to 10 years. If the Reserve Bank changes official rates, for example, this will have no impact on your regular repayment under a Fixed Rate schedule.
This provides some level of security for borrowers but a Fixed Rate Loan is often the most inflexible of loan types. For example, additional repayments, made to reduce the term of the loan and interest payable on the balance of the loan, may result in additional charges being incurred. Redraw is generally not available on Fixed Rate loans.

Split Loan

The Split Loan offers a “best of both worlds” scenario between the Variable and Fixed Rate loans described above. If you are concerned about rising interest rates, but want to maintain the flexibility of making additional loan repayments without being charged extra costs, the Split Loan might be for you. Essentially, you split the total loan into two portions, making one portion a Fixed Rate loan, with the second portion a Variable Rate loan. The split ratio is typically up to you but 50:50 or 60:40 splits are the most common.

Introductory or Honeymoon Rate Home Loan

Introductory loans offer an interest rate that is lower than the standard variable rate for an initial period of time, usually the first year of the loan. This rate may be fixed or variable and once the Introductory period concludes, the interest rate usually reverts to the Standard Variable rate. The advantage of this rate is that it offers borrowers a chance to ease their way into the routine of repaying a home loan with the reduced rate. This “honeymoon” period also allows you to reduce the principal loan amount more quickly by making extra repayments at no penalty charge.

All In One Home Loan

The All-In-One Loan essentially combines your home loan account with your day-to-day transaction account. This allows you to directly credit your salary into the account and then withdraw funds as you need them, like a standard transaction account. The major benefit of this structure is that enables you to decrease the interest charged on the loan by keeping your salary, savings and other income in the account for as long as possible.
The interest rate on All-In-One loans may be slightly higher and you may also be charged a higher monthly fee. This type of loan suits reasonably disciplined borrowers or experienced investors who can regulate their spending so as to not allow the debt to expand or stagnate.

Line of Credit Home Loan

Line of Credit loans, also known as Home Equity loans, offer high levels of flexibility. You can think of it operating a little bit like a credit card, in that the lender assigns you a credit limit secured against your property, and when you need cash for bills or other spending, you simply draw against that limit. As you pay back the loan, the funds become available to you again.
One of the biggest advantages of a Line of Credit is that you always have ready access to money, making it highly attractive to investors. However, Line of Credit usually will attract a higher rate of interest than a standard loan. As for All-in-One loans, a degree of discipline is necessary to make sure the debt does not escalate and never reduce.

Low Doc Loan

Low Doc Loans are useful for borrowers who are self employed and are unable to provide the conventional documentation required to prove their income level. There are many variations on these types of loans, some allowing customers to simply declare their income by completing the loan application or by signing an income statement.
The trade off for this level of flexibility in the application process is either more initial deposit money or a higher interest rate. Many Low Doc products give borrowers the option to switch back to a conventional variable rate product after a set period of time without the need to show full financial statements, provided that they have maintained a good credit history during the applicable period.

Non-conforming Home Loan

Non-conforming loans are designed for borrowers that don’t meet standard lender credit criteria. These people may include seasonal or contract workers, non-residents, small or no-deposit holders or even those with a poor credit or repayment history. In most cases, non-conforming loans will attract higher interest rates.
Bridging Home Loan
This is a short term loan that allows a buyer to complete the purchase of a property before selling their existing property. It is useful for borrowers who want to finance the building or purchase of a new home while still living in the old one. Given the higher risk to the lender associated with this kind of loan, the bridging loan may attract a higher interest rate.

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