Standard Variable
This loan type is a step up from the basic variable loan, and is very popular. As the name indicates, they have a variable interest rate, meaning it can fluctuate up and down, generally in line with changes to official interest rates as set by the Reserve Bank of Australia (RBA).
It is interesting to note though, in the past, some major banks have chosen to raise their standard mortgage rates higher than official interest rate rises announced by the RBA. In some cases, the increase was almost double the official rate rise.
The standard variable loan is a common choice for first home buyers as its simplicity makes it is easy to compare lenders. They are also attractive because they are traditionally the most flexible of all the home loans and offer an array of features that can be used effectively to make faster inroads into reducing your debt. This means less interest paid overall and a shorter loan term – all good points and money savers.
Popular features of standard variable loans include mortgage offset facilities, where you can have the interest you owe on your home loan reduced by the interest you earn on your other accounts, without any dilution to tax; and the option to make extra payments which can enable you to pay your loan off faster and reduce overall interest costs. Another popular feature of most standard variable loans is the ability to redraw your additional repayments if you wish to.
While the main advantage of this loan type is its flexibility, it is important to remember that with variable interest rate loans that interest rates can rise, so borrowers need to be prepared for this eventuality. That said, standard variable rate loans can be the best choice for all types of borrowers, including investors, owner-occupiers and first home buyers.
