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Variable Rate LoansA variable loan will be subject to interest rate changes over the life of the loan. These may or may not be in line with the Reserve Bank’s official interest rate movements. While these loans may seem riskier due to the uncertainty in future rates, they offer many advantages, including: Flexibility: You can often make unlimited extra repayments into a variable loan, which will pay off the loan faster than simply paying the minimum payment. Added Features: If you have a redraw facility, you can access these additional repayments if you need money. Possibility of reduction in payments: As interest rates fall, so too do the required repayments. This could help your cashflow or, if you keep repayments the same, pay the loan off faster. However, there are also risks involved. Possibility of increase in payments: As rates rise, so too will your required repayments. Some Lenders will offer what is known as a Basic Variable Loan. This will often have a discounted interest rate to the Standard Variable Rate, however will come with less features, such as no redraw facility, or will have additional fees and charges. |
