Variable Interest Rate Loans

Standard variable loans are the most popular home loan type in Australia. The interest rate on this loan moves up and down in line with official interest rate fluctuations. This means the interest rate may go up or down during the loan term. Different lenders offer different features and rates on their standard variable loan products, generally according to the amount you are borrowing.

What is the Current Standard Variable Interest Rate?

Standard variable interest rates are actually not standard and different lenders have different 'standard' rates. The one most commonly referred to in the press however the standard variable rate of the major lenders. Because of the changing accessibility and cost of funds, from January 2008, along with many others, the eight major lenders shifted their standard variable rates and they are no longer the same. The RBA announced another rate rise in February 2008 and March 2008, and most lenders have shifted their standard variable rates at least two other times outside those shifts. As at 9 April 2008, standard variable rates among the major banks and lenders are now: AMP Banking 9.37% - ANZ 9.37% - CBA 9.44% - Homeside (NAB) 9.39% - NAB 9.36% - St George 9.47% - Suncorp 9.37% - Westpac 9.37%. (For individual lender comparison rates, you will need to either talk to a mortgage broker or check with the relevant lender).

Pros

If interest rates drop, repayments might drop
Generally, additional or extra payments reducing the principle can be made without penalty, allowing the home loan to be paid off faster.
Additional repayments can usually be taken back by you
This product is flexible and often has more features.

Cons

If interest rates rise, repayments might rise along with the amount of interest paid. The borrower is then required to make larger repayments.
Generally attract a higher interest rate than basic home loans.

Basic Variable Loans

Basic variable loans are loans with lower interest rates, but with fewer features than a standard variable loan. The interest rate can rise or fall over the term of the loan. These loans are typically "no frills" products although there are more features being added by some lenders as the market becomes more competitive.

Pros

Lower interest rate than the standard variable loans (usually around 0.5% less)
Repayments are lower than standard variable loans
If interest rates drop, repayments also drop.

Cons

Usually not as flexible as standard variable loans (not portable)
Offer less features
If interest rates rise, repayments also rise. The borrower is then required to make larger repayments.

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How do Variable rates move up and down

Variable rates are driven by Reserve Bank policy while fixed rates are driven by the views of those that put their money out to the fixed rate wholesale market. The Reserve Bank sets policy based on a range of economic indicators as they use interest rates to manage people's expenditure and thereby the economy.