Variable Rate Mortgage

Variable Rate Mortgage

Variable Rate Mortgage is a type of loan you repay at variable interest rate. With the Variable Rate Mortgage loans, interest rates are set to vary during the life span of the loan. Interest rates are set against the Reserve Bank of Australia's (RBA) official cash rate. However, the imposed variable interest rate will be slightly higher than RBA's and will vary with each lending company.

Most Variable Rate Mortgage loans are principal and interest loans, although there are a few interest only Variable Rate Mortgage loans available. Most of these Variable Rate Mortgage loans span for thirty years. There are typically three types of variable interest rates:

1. Introductory or Honeymoon Rate - Periods with this interest rate usually last for three years. Introductory rates are about a percent lower than the standard variable interest rate. The loan will then revert to the standard variable interest rate. Variable Rate Mortgage loans with the introductory rate target new homebuyers who may need to ease into mortgage payments.
2. Basic Variable Rate - The basic variable interest rate is slightly lower than the standard variable interest rate but common loans with basic variable rates offer less features.
3. Standard Variable Rate - The standard variable interest rate is slightly higher than the basic variable interest rate, but Variable Rate Mortgage loans with this rate usually come with several desirable features. Variable Rate Mortgage loans with the standard variable rate often include unlimited repayment, interest offset accounts, and redraw facilities. Some Variable Rate Mortgage loans even offer a credit line.

Variable Rate Mortgage loans suit people who foresee wanting to make extra repayments on their loans. Variable Rate Mortgage loans often do not charge fees for extra repayments. Also, if you prefer the features that come with such loans, like the redraw facility and interest offset account, Variable Rate Mortgage loans might be the loan type for you.