Standard variable home loans
Perhaps the most common type of home loan for Australian home owners is the standard variable home loan. The standard variable interest rate home loan calculates interest charges based on the Reserve Bank of Australia's current official interest rates. Standard variable rate home loans offer greater flexibility than the fixed interest rate home loan option. Here we look at some of the advantages of a standard variable home loan.
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Standard variable home loans; the most flexible of all home loans
As mentioned, the standard variable home loan offers the most flexible option for home owners. As the name suggests, the interest rate charges are calculated based on official interest rates. So, when interest rates are rising, the standard variable interest rate will rise, and therefore monthly repayments will also rise. Subsequently, when official interest rates fall, the monthly repayments on a standard variable home loan will also fall. With a fixed rate home loan however, monthly repayments are set for the period of the term, regardless of whether official interest rates rise or fall.
Advantages of the standard variable home loan
One of the advantages of the standard variable home loan is that these home loans are more flexible than fixed interest rate home loans. For example, you may be able to make extra regular or one off payments anytime that you wish.
Variable rate home loans may also offer other flexible features including redraw facility, direct salary credit into your home loan and line of credit facilities.
Redraw facility on standard variable home loans
A redraw facility on a standard variable home loan helps you save on interest by allowing to pay your income straight into your home loan and then redraw funds as you need them for your everyday living expenses. This helps to reduce the total amount of interest payable because the monthly interest calculation will be done on a lower amount. These are particularly common in the larger cities such as Sydney, Melbourne and Brisbane where mortgages and incomes tend to be higher.
Line of credit on standard variable home loans
A line of credit on a standard variable rate home loan allows you to use some of the equity in your property to use for any other purpose that you like. Typically, you may have a $25,000 line of credit which is available to you at any time and for any purpose. While you are not using the line of credit, it sits in your account helping to reduce your total interest payments. You only pay interest on the line of credit as you use it. But remember, you will only be paying the same low interest rate as the remainder of your mortgage, so it is a lot cheaper than applying for a personal loan or using your credit card.