Basic variable loans are aimed at rate shoppers looking for a bare-boned, cheap-as-chips mortgage where the emphasis is on paying the lowest interest rate rather than flexibility.
Basic variable products are a handy option for those with an established mortgage who believe they are paying too high a rate and are considering refinancing. Investors are also taking out these loans in growing numbers to take advantage of sub-6% rates, which are practically non-existent on standard variable mortgages these days.
Cheap home loans such as basic variable typically offer lower interest rates than their feature-packed colleagues.
Will this result in lower minimum monthly repayments for the borrower? In most cases, yes. But will the borrower be able to make additional repayments, redraw these additional payments at a later date or credit their salary directly into their loan account? Probably not, although there are some no-frills products now available on the market offering the ability to make extra repayments and take these funds out as needed.
Cheap loans with minimum features may be useful for people who know that they will never need additional flexibility with their loan, haven’t the means to pay more than their minimum repayments and have accepted the fact that they are in for a 25-year (or even 30-year) haul before they can call their home their own. A generation ago, this description probably suited many home loan borrowers, but the story has changed today. Lack of flexibility is a definite turnoff for many people contemplating cheap loans with minimum features.
Basic variable loans track the rate movement of the Reserve Bank of Australia, so if the official rate rises, basic variable rates also increase. When the RBA slashes rates, basic variable rates also fall.
The old adage that ‘you get what you pay for’ is very often true in the lending market. If you are content to make your minimum monthly repayments over the full term of your loan, then the cheapest loan you can find can often be the best. However, if you want to wipe out your mortgage that much faster, you may want to consider some of the ‘mortgage exotica’ – loans with features that can help you pay off your loan faster and save you serious dollars in the long term.
Carries some of the lowest interest rates in the mortgage market.
Lacks flexible features such as the ability to make extra repayments, redraw and offset facilities.
Homebuyers or investors who want the lowest rate and don’t need flexibility with their loans.