What is a basic variable home loan?
A basic variable home loan is a straightforward type of mortgage that generally comes with a low interest rate and minimal fees.
It is designed for borrowers who want a simple loan without a lot of extra features. Often, this is the most affordable home loan option offered by banks or lenders.
What Makes a Basic Variable Home Loan Different?
While it’s called a "basic" loan, it still has some useful features, although these may vary depending on the lender. Here’s a closer look at what you can expect:
Features of Basic Home Loans:
Redraw Facilities:
Many basic home loans allow you to access extra repayments you’ve made. For example, if you pay more than your required monthly payment, you might be able to take that extra money back out if needed. However, keep in mind that some lenders may charge a fee for this service or limit how often you can redraw funds.
Extra or More Frequent Payments:
Basic loans often give you the option to make additional repayments. This can help you pay off your mortgage faster. You might be able to change your repayment schedule to fit your financial situation better, although there may be limits on how much extra you can pay.
Top-Up Feature:
If you find yourself needing more funds—perhaps for a renovation or to purchase a new car—a basic loan might offer a top-up feature. This allows you to increase your original mortgage amount, giving you access to additional cash while spreading out your repayments.
Lump-Sum Payments:
Instead of making regular extra repayments, some basic loans let you make larger, one-time payments. This flexibility can be beneficial if you receive a bonus or inherit some money and want to reduce your loan balance quickly.
Interest Rates on Basic Home Loans:
Basic variable home loans usually have some of the lowest interest rates available. Lenders often reserve their most competitive rates for these simpler products because they come with fewer features. When comparing loans, you might find that basic home loans have interest rates that are 10 to 50 basis points (0.10% to 0.50%) lower than loans with more features, like offset accounts.
Why Choose a Basic Variable Home Loan?
If you’re looking for a no-frills option and want to keep your borrowing costs low, a basic variable home loan can be a smart choice. It’s ideal for those who prefer simplicity and are comfortable with the potential for their interest rate to change over time.
By focusing on the essentials—lower interest rates and fewer fees—you can save money while still having access to features that help you manage your mortgage effectively. Just be sure to carefully review the terms and conditions, as features and fees can vary between lenders. Understanding what’s included will help you make an informed decision that aligns with your financial goals.