When you're buying a home in Eltham, understanding the features of variable rate home loans can help you make informed decisions about your borrowing capacity and financial situation. Variable rate loans offer flexibility that many borrowers find appealing, but they come with unique characteristics worth exploring.
What Makes Variable Interest Rates Different
Variable home loan rates move up and down based on market conditions and lender decisions. Unlike a fixed interest rate home loan that locks in your rate for a set period, variable rates can change at any time. This means your home loan interest rate - and your repayments - can fluctuate throughout the life of your loan.
When calculating home loan repayments with a variable rate, you'll need to consider that your payments may change. Many borrowers appreciate this flexibility because when rates drop, so do their repayments. However, it's important to budget for potential increases too.
Key Features of Variable Rate Home Loans
Variable rate loans typically offer several features that can benefit your financial situation:
• Offset account - Link a transaction account to your home loan to reduce interest charges on your loan amount
• Extra repayments - Make additional payments without penalties to reduce your loan term
• Redraw facility - Access extra payments you've made if needed
• Interest rate discounts - Negotiate better rates based on your loan to value ratio (LVR) and financial profile
Understanding Your Home Loan Options
When applying for a home loan in Eltham, you'll have access to Home Loan options from banks and lenders across Australia. Each lender structures their variable products differently, affecting everything from interest rates to approval criteria.
Your borrowing capacity depends on several factors including your income, expenses, and existing debts. Lenders will review your banks statements and assess your ability to service the loan at higher interest rates than the current variable rate - this protects both you and the lender if rates rise.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Premier Path Finance today.
The Application Process for Variable Rate Loans
The Home Loan application process for variable rate loans follows a structured approach. Getting pre-approved can strengthen your position when buying a home, especially in Eltham's active property market.
During the application process, lenders evaluate:
- Your income and employment stability
- Your deposit size and loan to value ratio (LVR)
- Your credit history and existing debts
- The property you're purchasing
If your LVR exceeds 80%, you'll typically need lenders mortgage insurance (LMI). This protects the lender if you can't meet your repayments, though the cost is passed on to you.
Costs Beyond the Interest Rate
When budgeting for your home loan, remember that the interest rate isn't your only cost. In Victoria, you'll need to factor in stamp duty, which varies based on the property value and your circumstances. First home buyers may be eligible for stamp duty concessions or exemptions.
Other costs include:
• Loan establishment fees
• Ongoing account keeping fees
• Valuation costs
• Legal and conveyancing fees
Making the Most of Variable Rate Features
To maximise the benefits of your variable rate home loan, consider how features like an offset account can work for your situation. Money in your offset account reduces the balance on which you pay interest, potentially saving thousands over your loan term.
Building home equity through extra repayments when you can afford them provides financial flexibility. If interest rates rise significantly, you'll have built a buffer that can help manage higher repayments.
When to Consider Variable vs Fixed
Choosing between variable and fixed rates depends on your risk tolerance and financial goals. Variable rates offer flexibility and often start lower than fixed rates, while fixed rates provide payment certainty.
Some borrowers split their loan, fixing part and keeping part variable. This approach provides some protection against rate rises while maintaining access to variable loan features.
Working with Local Expertise
As mortgage brokers in Eltham, we understand the local property market and can help you assess which variable rate features align with your financial goals. We work with multiple lenders to find suitable options for your situation.
Variable rate home loans offer flexibility and features that can benefit many borrowers. Understanding these features helps you make informed decisions about your home loan and take advantage of opportunities to reduce interest costs and build equity faster.
Whether you're a first-time buyer or looking at refinancing your existing loan, exploring variable rate options with professional guidance ensures you understand all aspects of your borrowing decision.
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 the right solution for your circumstances.
