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A basic variable home loan is essentially a "no-frills" home loan that doesn't offer any additional bells and whistles. In return for opting for this basic product, most banks and lenders offer basic variable home loans to customers at discounted interest rates and they charge lower fees. The interest rate itself is still a variable rate, so it's subject to move up and down in line with fluctuations in the market. However, lenders will usually offer a set discount below their standard variable rate.
Competition between banks is quite fierce, so basic variable home loans often feature some of the cheapest interest rates on the market. Still, the best loan isn't always the one with the lowest rate, so the key to choosing the right loan is to compare its features and look into how they might help you achieve your financial goals now and in the future.
Basic variable loans don't come with all the additions of a full-featured loan, but more often than not, these loans are more than just an interest rate and repayment date. Common value adding features of basic variable rate home loans include:
When you're comparing basic variable home loans, don't be tempted to jump at the one that has the lowest advertised interest rate. There are some other things you need to consider in order to compare your options accurately. These include:
In order to apply for a basic variable home loan, you will need to provide your lender with the following information:
All new home loan applications will require that you provide identification to prove who you are. Suitable documents might include:
You'll need to supply a couple of recent payslips, plus a PAYG payment summary or a tax assessment notice to verify your income. If you have other income coming into the household, you'll need to verify this too. This might include Family Allowance payments, child support payments, dividend income or rental income.
If you're self-employed, you will need to provide two full financial years' worth of financial statements. Some banks may require you to also supply Business Activity Statements (BAS) if your application is lodged after December, as this is often six months after the last financial statement was prepared.
The application form for your basic variable home loan will ask for information about your current assets and liabilities. You will need to know the approximate values of your assets, including real estate, cars, amounts in savings accounts, and superannuation. You'll also need to provide outstanding balance amounts for any debts you currently have.
All lenders will want to know what your current repayment obligations are. You will need to know how much you pay each month on any outstanding loans, credit cards, store cards or any other debts you have.
If you're refinancing your existing mortgage from your current lender to a new lender, you'll usually need to supply 12 months of statements for your current home loan. This shows the lender if you've been diligent about making your repayments on time. If you're including any debt consolidation amounts into your refinance, you'll also need to provide statements for any accounts that are being consolidated, such as credit card statements or personal loan statements.
If you are not using existing equity in your home to secure your mortgage, you'll need to provide evidence of where your deposit is coming from. This will mean providing bank statements for your savings account showing that you have been maintaining a regular savings plan.
If you're purchasing a home, you will need to provide a signed, fully executed contract of sale along with your application.
Managing a basic variable home loan should be relatively easy but there are always things to research and consider before you submit your application. Here are some simple tips to help you get started on the right track.
While you might have been attracted to a particular loan because of the interest rate, it's always worth checking whether the discount applied to the basic variable rate is a set amount below whatever the standard variable rate is. For example: some lenders will guarantee that their basic mortgage will always be 0.7% below their standard variable rate, so if rates move up or down you'll know your rate will move up or down at the same increments. Other lenders won't guarantee the discounted amount, which can mean that even if the standard variable rate is reduced by 0.25%, your basic variable loan might only reduce by 0.2%.
Most lenders will allow you to set up direct debit payments from your regular transaction account for your payments to be taken out of. You should also be able to choose your payment frequency, so your payments can be set so they're made weekly, fortnightly or monthly. There are also some lenders that will let you set up your payments so they're made by salary crediting. This is where your payroll officer at work pays a portion of your salary directly into your home loan account, while the rest goes into your normal transaction account.
Most lenders will give you various options for making extra payments on your mortgage. You can usually elect to pay more than the minimum payment amount as part of your regular repayment. If you wish to just pay extra money when it suits your budget, you should be able to transfer funds electronically from your transaction account or savings account straight into your home loan account.
Your basic variable home loan might not be with the same bank as your regular transaction account. If you ever wish to redraw any extra payments you make on the loan, you will need to nominate an account for the money to be transferred to. Always check that you can link a transaction account to your home loan account for this reason.
Even though most basic mortgages feature a redraw facility, it always pays to check any conditions that will apply. For example, some lenders may not allow you to redraw your additional repayments unless you withdraw a minimum of $500 or $1,000. Other lenders may charge you a redraw fee each time you use this facility.
The majority of lenders offer several ways to manage a basic variable home loan. These include:
There are plenty of benefits to choosing a cheap basic variable rate home loan, but you'll also find there are some disadvantages too.
Any extra repayments you do make on a basic variable home loan will actively reduce your outstanding balance. As the interest charged on your mortgage is calculated daily on your balance, this can reduce the amount of interest you pay overall. You'll be saving money on interest charges and reducing the term of your loan.
A fixed rate home loan works differently to a variable rate home loan. While your loan's interest rate is fixed, your repayments won't change.
During the fixed rate term, you may be limited to the number of extra payments you're able to make before you're charged penalties. You may also find that steep break fees apply if you break out of your fixed rate term before it has expired, such as refinancing or selling your home. Many fixed rate home loans also won't allow you to redraw any additional payments you've made.
Marc Terrano is a lead publisher and growth marketer at Finder. He has previously worked at Finder as a publisher for frequent flyer points and home loans, and as a writer, podcast host and content marketer. Marc has a Bachelor of Communications (Journalism) from the University of Technology Sydney. He’s passionate about creating honest and simple reviews and comparisons to help everyone get value for money.
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Hi im not sure if my last question sent or not
I have a home loan with you and am wondering if we can make interest only payments for a couple months as we have had some unexpected expenditure of late
Regards
Brian
Hi Brian,
Thanks for your enquiry.
As finder.com.au is an online comparison service, we are not a lender.
You will need to contact your lender directly to discuss whether or not you can make interest-only payments for a given period of time.
Thanks,
Belinda
I have a home loan with you guys and am wondering if I can make interest only payments for a couple of months as we have had some unexpected expenses of late
Regards
Brian
Hi Brian,
Thank you for getting in touch.
You have contacted finder.com.au a financial comparison site, please contact your lender directly to discuss alterations of your repayments with them.
Regards
Jodie