Variable rate home loans – The Happy Finance Company

Variable rate home loans

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A Variable Rate Home Loan is like that ever-changing mood ring you used to wear as a kid – it can be unpredictable, but it also has its moments of brightness. This type of home loan comes with an interest rate that can change at any time. In simple terms, when interest rates are low, your repayments will bring a smile to your face with their affordability, but be prepared for the possibility of paying a bit more when interest rates decide to dance upwards. Unlike fixed rate home loans, where repayments remain steady, variable rate home loans can fluctuate from month to month, making them a bit more dynamic.

Why Do Interest Rates Fluctuate?

Interest rates are like the weather in Brisbane – they can change quickly! The main influencer of interest rates is the RBA cash rate. The Reserve Bank of Australia meets on the first Tuesday of most months (excluding January) to set the cash rate. They decide whether to raise, lower, or maintain it based on various factors, including the state of the housing market, inflation, and the performance of the Australian dollar. This decision has a ripple effect on interest rates throughout the country.

But here's the twist: Mortgage lenders can also adjust their interest rates independently of the RBA's decision. They sometimes justify these changes with the "cost of funding" explanation. Banks often source funds from international markets, and these funds can have their own rate fluctuations that might not be immediately obvious to us.

So, remember that your bank can change your variable home loan's interest rate without the RBA moving the cash rate.

The Bright Side of Variable Rate Home Loans

Now, let's talk about the perks of choosing a variable rate home loan. We're all about finding the silver lining!

Fluctuation for Lower Payments: When interest rates drop, your monthly repayments follow suit, leaving you with more money for life's little joys.

Feature Extravaganza: Variable rate loans often come with exciting features like redraw facilities and offset accounts. Think of them as the icing on your financial cake.

Extra Repayments: You can turbocharge your path to homeownership by making extra repayments whenever you like.

Refinancing Flexibility: Unlike fixed-term loans, there's usually no break fee if you want to refinance, giving you the freedom to explore better options.

The Not-So-Bright Side

We promised a happy spin, but we also believe in transparency. Here are some aspects to consider:

Repayment Rollercoaster: Your monthly repayments can fluctuate, which might make budgeting a tad more challenging.
Interest Rate Hikes: If interest rates rise, your repayments will follow suit. So, be prepared for a bit of uncertainty.
Budgeting Challenge: Managing household expenses might require a little more finesse.
Mortgage Stress Risk: While we like surprises, not when it comes to finances. Be aware that variable rates can expose you to a higher risk of mortgage stress.
Lender Independence: Your lender can change your interest rate independently of the RBA, so you may need to keep an eye on those notifications.

If a variable rate home loan doesn't seem like your cup of tea, don't worry; we've got more options brewing:

Fixed Rate Home Loans: These provide stability with a fixed interest rate for a specific term. However, they may have fewer additional features.

Split Rate Home Loans: For those who want a taste of both worlds, a split rate loan combines fixed and variable components, offering flexibility and stability.

The Perfect Fit for You

Variable rate home loans are currently a popular choice in Australia, thanks to the low cash rate set by the Reserve Bank of Australia. However, remember that lenders can change rates independently of the cash rate. Fixed rates offer stability, making them attractive to those planning for significant life changes. If you want the best of both worlds, a split loan might be your answer. It's like having two outfits for the day and night!

If you're still unsure which option suits you best, don't hesitate to chat with one of us for free expert advice. We're here to help you find your financial happy place!

Unlocking the Power of Offset Accounts

For those of you with a variable rate home loan, there's a hidden gem – the offset account. Some variable loans offer a 100% offset account, which can be a game-changer. It's like finding money you didn't know you had!

By keeping cash, like your salary, in an offset account rather than a regular savings account, you automatically reduce the total interest you pay each month. It's a simple yet powerful way to save thousands over your loan's lifespan.

Some tips on how to save on the interest you pay

Payment Frequency: Change your repayments from monthly to fortnightly or weekly. Interest is calculated daily, so this can add up to significant savings.
Embrace Offset Accounts: Keep your cash in an offset account instead of a savings account to lower your monthly interest costs.
Split and Conquer: Consider locking in part of your loan with a fixed rate while keeping the rest variable. This way, you benefit from both stability and flexibility.
Debt Makeover: Roll higher-interest debts like credit cards, car loans, and personal loans into your home loan for lower overall repayments.
Principal and Interest Rates: Since principal and interest (P&I) rates are often lower than interest-only (IO) rates, consider switching to P&I if it's feasible for you.
Shop for the Best Rate: Always compare lenders to get the best deal. Using an online home loan platform with all major banks and lenders in one place can save you time and money. We've got your back!

Your home loan journey is a marathon, not a sprint, with a potential lifespan of up to 30 years. So, choose wisely and ensure your choice brings happiness to your financial world. If you're looking for personalized advice, chat with a Home Loan Specialist today. We're here to make your mortgage journey as joyful as possible!