Variable rate home loans can generally be categories into Basic Variable and Standard Variable loan products. These two loan types are effectively the same in the way they work. The only differences are in the interest rate charged, and the features available. A standard variable loan will usually have a full range of features, whilst a basic variable loan will have a more restricted range.
Variable rate home loans can generally be categorized into Basic Variable and Standard Variable loan products. These two loan types are effectively the same in the way they work. The only differences are in the interest rate charged, and the features available. A standard variable loan will usually have a full range of features, whilst a basic variable loan will have a more restricted range.
A summary of the usual differences is set out below. Please note that this is a general guide, and that differences between lenders may arise with specific products.
| Feature | Standard Variable | Basic Variable |
|---|---|---|
| Redraw | YES | YES |
| Extra Repayments | YES | YES |
| Discounts available for higher loan amounts | YES | NO |
| Mortgage Offset Account | YES | NO |
| Line of Credit option | YES | NO |
| Ability to change to fixed rate | YES | NO |
A third category of variable home loans are loans with introductory interest rate discounts. They are normally a variant of a banks Basic variable loan product, and offer new customers a reduced or discounted rate of interest for a set time. These discount periods can range from 6 months to 24 months, after which the interest rate reverts to the Standard Variable Rate. In order for the Lender to ensure that they recoup the cost of the discount and to discourage borrowers from continually changing from introductory products of various lenders, most have introduced penalties should the borrower repay/switch the facility within a specific time.
• A Home Loan Package is an all-inclusive suite of products attached to a home loan. For an annual fee, you can get benefits such a discount on the variable interest rate, fee waivers for transaction or offset accounts, a credit card with an annual fee waiver and discounts on insurance products.
Things to consider
• To be eligible for a Home Loan Package, a minimum loan amount will be required (usually $250,000 or more).
• An annual package fee will apply and can range from $350 to $750 depending on the type of package and the lender.
• A credit card (with no annual fee) is usually part of the package. You may not require this card and the credit card limit may impact your borrowing capacity. It could also result in you incurring more debt at credit card interest rates.
• Talk with us and we’ll help you consider the pros and cons of each product, as well as the overall costs and savings, before choosing the option that suits your needs.