Understanding Variable Rate Home Loan Terms

If you're looking into home loan options on the Central Coast or around The Entrance, you've probably come across the term 'variable rate home loan'. But what does it actually mean, and is it the right choice for you?

Let's break down the ins and outs of variable rate loan terms so you can make an informed decision about your home loan application.

What is a Variable Rate Home Loan?

A variable rate home loan is a type of owner occupied home loan where the interest rate can change over time. Unlike a fixed interest rate home loan where your rate stays the same for a set period, a variable interest rate moves up or down based on market conditions and decisions made by your lender.

When the Reserve Bank of Australia adjusts the official cash rate, lenders typically respond by changing their home loan interest rate. This means your repayments can increase or decrease depending on what's happening in the broader economy.

Key Features of Variable Rate Home Loans

Variable home loan rates come with several home loan features that can add flexibility to your borrowing:

• Offset account: Many variable rate home loan packages include a linked offset account where your savings can reduce the interest you pay on your loan amount
• Extra repayments: You can usually make additional payments without penalty, helping you build equity faster
• Redraw facility: Access any extra money you've paid off your loan if you need it
• Portable loan options: Take your loan with you if you move properties
• Interest rate discounts: Negotiate rate discount opportunities with your lender

These home loan benefits give you more control over how you manage your mortgage and can help improve borrowing capacity for future investments.

Variable vs Fixed vs Split Rate Options

When you apply for a home loan, understanding the difference between these home loan products helps you choose what suits your situation:

Variable Rate: Your interest rate fluctuates with market movements. You benefit when rates drop and have access to flexible features like mortgage offset accounts.

Fixed Rate: Your fixed interest rate stays the same for a chosen period (typically 1-5 years), giving you certainty with your repayments but fewer flexible features.

Split Loan: You can divide your loan amount between fixed and variable portions, getting some rate certainty while maintaining access to variable loan features.

Many Central Coast residents working with mortgage brokers find that comparing these home loan options helps them align their choice with their financial goals.

Benefits of Choosing a Variable Rate

Variable rate home loans offer several advantages:

1. Flexibility: Make extra repayments when you can afford them to reduce your loan term and interest paid
2. Rate decreases: If current home loan rates drop, your repayments decrease automatically
3. Feature-rich: Access helpful tools like offset accounts that work to reduce your interest
4. No break costs: If you want to refinance or pay off your loan early, there are typically no exit fees

For first home buyers looking to achieve home ownership while maintaining flexibility, variable rates often provide the features needed to manage changing life circumstances.

Understanding the Risks

While variable rates offer flexibility, it's important to understand the potential downsides:

• Your repayments can increase if interest rates rise
• Budgeting can be more challenging without fixed repayments
• You need some financial buffer to handle rate increases

When calculating home loan repayments, factor in a buffer of 2-3% above the current rate to ensure you could still afford repayments if rates increase.

Important Terms to Know

Loan to Value Ratio (LVR): This shows how much you're borrowing compared to the property's value. A lower LVR often means access to lowest rates and may help you avoid Lenders Mortgage Insurance (LMI).

Principal and Interest: Most owner occupied home loans require principal and interest repayments, where you pay both the loan amount and the interest charged. This helps you build equity over time.

Interest Only: Some borrowers choose interest only repayments for a period, though this is more common for those who invest in property rather than owner-occupiers.

How Variable Rates Impact Your Financial Goals

Choosing a variable interest rate home loan can support various objectives:

• Financial stability: The flexibility to make extra repayments when you have surplus income
• Secure future: Build equity faster by paying more when your budget allows
• Invest in property: Use equity gained to expand your property portfolio
• Need lower repayments: Benefit if rates decrease in the market

Accessing Home Loan Options Across Australia

When you work with Coco Finance Broking, you can access home loan options from banks and lenders across Australia, not just the major banks. This means:

• More opportunities to compare rates
• Better chance of finding home loan features that match your needs
• Potential for better interest rate discounts
• Support through your home loan pre-approval process

Whether you're in The Entrance, Gosford, or anywhere across the Central Coast, having access to multiple lenders gives you more choice when selecting your first home loan or refinancing your current arrangement.

Making Your Decision

Choosing between variable, fixed, or split rate options depends on your personal circumstances, risk tolerance, and financial goals. Consider:

• How stable is your income?
• Do you have savings to buffer against rate rises?
• Do you value flexibility over certainty?
• Are you planning to make extra repayments?

A loan health check can help you understand whether your current home loan rates are still working for you, or if it's time to explore other home loan packages.

The team at Coco Finance Broking understands the Central Coast property market and can help you compare rates and home loan products from multiple lenders. We'll work through your options, explain the home loan features available, and support you through the entire home loan application process.

Call one of our team or book an appointment at a time that works for you to discuss your variable rate home loan options and find a solution that supports your journey to achieve home ownership.