Floating Rate Mortgages
Home loans with floating interest rates are usually the most competitive rates and they're easier to refinance.
How do floating rate mortgages work?
A floating interest rate can change whenever the lender decides to raise or lower it. Lenders might lower the rate to attract customers or because their home loan funding costs have decreased. They may raise rates if their costs go up.
But in reality lenders aren’t moving their variable rates up and down every week. And on average, floating rate mortgages tend to be cheaper than fixed rates. It’s also easier to exit a floating home loan because there are no breaking costs (unlike with a fixed rate).
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Variable loans are more likely to have features like redraw and offset accounts, although this really depends on the product.
How do I compare variable rate loans?
Consider the following factors when comparing variable home loan rates:
- Interest rates. A lower interest rate means lower repayments. It’s the most important aspect of a home loan. Use a repayment calculator to find out what your repayments will look like with the given interest rate.
- Fees. A variable rate home loan can come with a range of fees. If the loan works for you and the interest rate is low, a few fees aren’t so bad. But if you can avoid fees then why pay more?
- Features. If you will actually use them, a variable loan’s features can be useful. If you have extra savings you might want a loan with an offset account. If you want a home loan that allows you to make unlimited additional repayments, you might want to look for home loans with a free redraw facility.
- Product types. Most variable rate loans are either basic or full-featured. A basic variable rate loan is usually a lender’s most competitive rate but the mortgage may not have features like offset accounts or redraw facilities. More full-featured loans with offset accounts often have higher rates (but not always). There are also package loans that are combined with a credit card and savings account from the same lender and introductory or honeymoon rates, which start very low but will go higher later.
If you’re looking for a more specialised type of variable home loan like some of the ones listed above, you should consider contacting a mortgage broker to get some free, expert guidance.
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