Banks and lenders often promote their standard and basic variable home loan rates when advertising their mortgage products – but have you ever wondered what the difference is between the two?

Both of these loan are attached to variable interest rates, which means the rate can change at any time, whether the Reserve Bank changes the cash rate or not. Generally, variable rates move in line with the RBA, but banks are increasingly setting their own rate agenda as their cost of raising finance increases.

"Variable rate loans can offer flexible features, such as unlimited voluntary repayments and access to the redraw facility," explains Martin Castilla, personal mortgage adviser and franchisee with Smartline.

However, there’s a big difference between a standard and basic product – and the right loan for you will depend on your individual goals and requirements.

What is a Standard variable rate?

Standard variable rate loans are the most popular mortgage product in Australia, with almost half of all borrowers opting for this type of mortgage.

Standard variable rate loans carry flexible features such as offset facilities, redraw, extra repayments and the ability to split the loan. In order to access these features, however, the borrower generally pays a higher interest rate.

What is a Basic variable rate?

A basic variable loan generally carries cheaper rates, because they lack the above-mentioned extra features.

"A basic or ‘no frills’ loan is around 0.7% lower than a standard variable loan, and is ideal for first homebuyers and owner-occupiers," Castilla explains. "However, beware of higher discharge fees [if you choose to close the loan] in the first three years."

Standard variable rate vs basic variable rate

A basic variable loan is perfect for first homebuyers who wish to keep their costs down, and those borrowers who want a simple mortgage product without any bells and whistles.

For those who require a little more flexibility, such as property investors, a standard variable rate is often a better choice. This is because the ability to redraw money from the loan, or park their extra cash in an offset account, more than makes up for the extra money they fork out in higher interest payments.

In any event, borrowers may be able to sign up for a professional package with their lender, which provides a discount on standard variable loan rates in exchange for a fixed fee of around $400 per year.

If in doubt, speak to your mortgage broker or trusted finance professional, as locking into the wrong product can be costly in the long run.

Property investor Daniel C, who currently owns four properties, made the mistake of selecting a basic variable product when he was starting out – and it’s a decision that has cost him thousands of dollars.

"I didn’t really understand the difference and the basic variable loan appeared to be cheaper, so I went with that option," Daniel explains.

Two years on, after reading an article in Your Mortgage, Daniel realised that he could have bundled all four loans into a professional package. He would have received 0.65% rate discount, bringing the interest rate close to what he’s paying on his basic variable loan anyway, and he would have had access to an offset account.

"I currently have $70,000 just sitting in my bank account earning 4% interest, and it could be offsetting my 7% mortgage!" he says.

"I’ve enquired about switching products with my bank but I’ll need to basically reapply for the loan, and I’ve recently started my own business, so I don’t have financials to support a new application. I’m stuck for now, but at least I know better for next time."

This story was originally written in 2010 and was updated in June 2018

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Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.04% p.a.
6.06% p.a.
$2,408
Principal & Interest
Variable
$0
$530
70%
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6.15% p.a.
6.15% p.a.
$2,437
Principal & Interest
Variable
$0
$0
90%
5.99% p.a.
5.90% p.a.
$2,396
Principal & Interest
Variable
$0
$0
80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of .



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