What are variable loans?
The rate charged on a variable loan moves up or down in accordance with movements in interest rates, as set by the Reserve Bank. This is unlike a fixed rate loan where the rate is locked down, or fixed, for a set period of time.
Basic variable loans generally have fewer loan features than a standard variable loan - and as a result, may then have a lower rate. This type of loan tends to suits those who are cost focused and not looking for the flexibility and options that are often offered with a standard variable loan.
What are the pros and cons of variable - basic and standard - loans?
- Repayments fall when official interest rates fall
- Standard variable loans offer flexibility and additional features, such as the ability to make additional payments, such as a redraw facility (take out any extra money that you have put in), low introductory or honeymoon rates
- Allows careful borrowers to pay off the mortgage quickly by not having any penalty for advance payouts
- Higher interest rate is higher for standard variable loans than basic loans because they usually offer additional features
- Repayments rise when official interest rates rise