The Basic Variable Home Loan
The Basic Variable Home Loan is a variable loan product that is not as highly featured as the Standard Variable home loan. The biggest advantage of this home loan is it’s rate of interest. Basic variable loans have a relatively low interest rate compared to other variable loan products. Therefore, the loan repayments on the Basic Variable Home Loan will generally be lower than those on a Standard Variable Home Loan. However the Basic Variable Home Loans also come with fewer features and less flexibility.
For example, many basic variable loans cannot be used in combination with other loans and are not portable. In some circumstances borrowers holding the Basic Variable Home Loan are offered the opportunity to take on additional loan features for an extra fee.
Like all variable loans, the interest rate and your repayments can vary over the term of the loan and will be generally tied to the interest rate changes by the Reserve Bank of Australia
The Standard Variable Home Loan
The Standard Variable Home Loan is Australia’s most popular type of home loan. The main reason for it’s popularity, is the flexibility associated with such a home loan. Generally a Standard Variable Home Loan will allow you to fix the interest rate on your loan or split the home loan into fixed and variable components. The Standard Variable Rate Loan will also allow the borrower to make extra repayments off the loan principal without incurring any penalties. It may also provide you with the option to re-draw additional funds paid off the loan principal.
The interest rate can vary up and down through out the term of the loan and usually depends on the interest rate set by the Australian Reserve Bank. If interest rates fall, your loan repayments will come down. However if the rates increase, so will your repayments.
A line of credit
A line of credit is an interest only variable rate loan secured against a residential property allowing access to funds whenever you need them. Such loans have the added flexibility of a transaction account built into the home loan. Line of credit products are a flexible way to raise funds for investment purposes by providing cash at call up to the prearranged credit limit. You to use the money as you need it and pay it back when you can. In that way it is comparable to an overdraft but at a much better rate of interest. A Line of credit also allows the borrower to access the account to meet day to day living expenses. Generally these types of loans allow interest only repayments, however there are variations and some lenders may require principal and interest repayments to ensure principal reduction is being made.
The interest rates available on lines of credit are similar to other home loan products and are much lower than the rates on credit cards or personal loans. Credit limits can also be higher than these alternatives, but will depend on your equity in the property.
The main risk attached with Lines of credit is that irresponsible borrowers may erode all the equity in their home. However for most home owners a line of credit is the most cost effective loan available and are hence the most sensible choice.