Standard and Basic Variable home loans
The standard variable home loan is Australia's most popular type of mortgage. The
interest rate can vary throughout the term of the loan - both up and down – as the
loan tracks the interest rate movement set by the Reserve Bank of Australia (RBA).
There two types of standard variable home loan products: standard and basic variable.
Standard Variable rate home loans
Standard variable is the biggest selling loan category in the market and accounts
for a big chunk of mortgage business. Getting a standard variable home loan is an
easy process for a borrower who meets mainstream criteria and holds a good credit
record.
Standard variable home loans often include redraw facilities, portability features
and allow the borrower to make additional repayments. Borrowers have the option
of making repayments weekly, fortnightly or monthly, and can combine their loan
with another eg fixed rate or split loan. However, these flexible features come
at a price – interest rates on standard variable home loans are higher compared
to the basic loans.
Basic Variable rate home loans
Basic variable home loans are among the cheapest product in the market. This product
appeals to budget-conscious (low-income) home buyers, first homebuyers and investors
– all wanting to make the minimum repayments on their mortgage, at the lowest interest
rate.
While the Basic variable rates and charges can be exceptionally low, most of these
products have limited features and do not provide borrowers the flexibility that
a fully-featured Variable product would offer. For example, you may not be allowed
to vary your repayment size and won’t be able to make unlimited repayments.
However, as the competition among lenders continues to get tighter, basic variable
loans are slowly acquiring some of the much-desired loan features such as redraw
and extra repayments.
Advantages of Standard Variable and Basic Variable home loans
- One of the attractive features of a variable loan (both standard and basic products)
is that your repayments will go down if the RBA cuts interest rates.
- Variable home loans are usually cheaper than fixed rates and the flexibility of
a standard variable can help you pay off your mortgage quicker – saving you substantial
amounts in interest.
Considerations - Standard Variable and Basic Variable home loans
- The biggest factor to consider with variable rate products is the ability for the
interest rate to fluctuate. Although your rate may drop with a fall in interest
rates, it can also increase if rates go up.
- The extra rate rise would be charged on a monthly basis and added to the loan, making
repayments higher. However, some variable rate home loans can be capped. The loan
term is usually 20 to 25 years.
Standard Variable and Basic Variable home loans are suitable for
Variable home loans are suitable for an array of borrowers. If you can budget for
a marginal rate increase this may be the product for you. Taking advantage of decreasing
interest rates can be financially beneficial for all variable borrowers. First home
buyers should make sure they can still service their loan if rates increase.
Some examples of Standard Variable and Basic Variable home loan products are:
- Ask HomeLoan Specialists won the non-bank category for Best Australian Basic
Variable Home Loan in the 2007 Your Mortgage ‘Mortgage of the Year’ Awards,
with their ‘Real Saver Home Loan Discount Saver’ product.
- Macquarie Mortgages won the bank category for Best Australian Basic Variable
Home Loan in the 2007 Your Mortgage ‘Mortgage of the Year’ Awards, with
their ‘SELECT Basic’ product.
- Ratebusters won the non-bank category for Best Australian Standard Variable
Home Loan in the 2007 Your Mortgage ‘Mortgage of the Year’ Awards, with
their ‘Rate Buster’ product.
- Macquarie Mortgages won the bank category for Best Australian Standard Variable
Home Loan in the 2007 Your Mortgage ‘Mortgage of the Year’ Awards, with
their ‘SELECT Classic’ product.