Increased loan repayments due to rate rises could impact your household budget, so make sure you take potential interest rate increases into account when working out how much money to borrow.
Variable rate loan
- Repayments are calculated so that over the term of the loan both principal (original loan amount borrowed) and interest are paid off in full by the end of the loan term.
- Usually offers a high amount of flexibility and benefits with a chosen repayment schedule and the allowance of extra payments.
- Interest rate fluctuates depending on notification of the Reserve Bank of Australia.
- There is a multitude of variable interest rates to choose from depending on the type of loan you require.
- If interest rates fall, the amount of your minimum repayments will too. However, repayments increase as interest rates rise.
- You need to be disciplined around a 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.
- The loan is commonly taken over a 25 – 30 year term
- You enjoy some of the flexibility of a variable loan along with the certainty of a fixed rate loan.