5 reasons to refinance to a variable home loan

By Gerv Tacadena

Variable home loans are perfect for borrowers who are diligent savers

Refinancing allows borrowers to find a competitive mortgage product that is more suited to their needs. If you are in a fixed-rate home loan and are still undecided about what to do after your contract ends, you might want to consider refinancing your loan to a variable rate.

Here are five reasons why it could make sense for you to get a variable home loan:

Take advantage of rate movements

Refinancing to a variable home loan will enable you to take advantage of cuts in official cash rates. Banks and lenders typically pass on these cuts to their variable-rate borrowers, allowing them to enjoy lower interest charges and repayments.

A rate cut of as little as 15 basis points can already make a lot of difference in your repayments. Your Mortgage's Home Loan Calculator will be able to help you calculate how much you can save. This guide will also help you visualise how rate cuts impact your payments.

Make extra repayments

If you are in a variable-rate home loan, you will be able to pay it off quickly by making extra repayments.

Extra repayments can be made in a lump sum or in monthly terms. Both methods directly pay down the principal amount of your loan. Since the amount of interest is always based on the principal amount of your loan, making extra repayments will enable you to lessen interest charges in the long run.

Furthermore, it will also allow you to shave years off of your home-loan term. This is more likely achievable when you pay in a lump sum. The faster you pay off your loan, the higher the savings you can get.

Access redraw facility

If you want to be able to access your extra repayments in case of emergencies or other special circumstances, refinancing to a variable loan is the right way to go.

With a variable home loan, you will be able to access a redraw facility, which will allow you to withdraw extra repayments you made towards your loan for a fee.

Get an offset account

Most lenders allow variable-rate borrowers to get an offset account.

An offset account is a mortgage feature that will help you not only save but also reduce the amount of interest you pay on your loan. It works like a high-interest savings account and is connected directly to your home loan — the funds you have in it are offset daily against your balance.

This is perfect if you are a diligent saver, given that you can significantly reduce your interest payments if you have large savings in your offset account.

Unlike in a redraw facility, the funds you have on your offset account are not directly paid towards the principal amount of your mortgage loan. However, the big advantage of an offset account is the ability to withdraw your funds whenever you desire with no fees.

Enjoy the flexibility

A variable-rate home loan offers flexibility in many aspects. Aside from allowing you to pay extra on your loan with no limits and fees, variable home loans will also allow you to take a repayment holiday if you find your finances in trouble.

Furthermore, lenders often give variable-rate borrowers access to many loan features that will allow you to save in the long run.

It will also be simpler to switch loans or lenders if you have a variable home loan. This is particularly helpful if you intend to refinance to a new mortgage product with a more competitive interest rate and features.  Given that you are not locked into a fixed contract, you will not be required to pay break costs of other penalties when you make the switch.

Want to reach out to a professional? Head to Your Mortgage Broker to get the best home loan advice and services.

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