The interest rate in a variable interest loan is, as you may have guessed, variable. The interest rate charged by your lender may vary throughout the life of the loan according to market conditions and indicators such as the Reserve Bank of Australia’s cash rate.

In other words, the repayments associated with the loan can also go up or down at any time. Many variable loans now offer a wealth of features such as an offset account or the ability to make extra repayments and redraw funds. Some institutions also offer basic or ‘no-frills’ variable loans with a lower interest rate but fewer features.

You'll often hear the media refer to the “standard variable interest rate” or SVR. This a benchmark rate, used by banks and lenders. These rates are not what customers usually pay, as they are typically only referenced rates and they are certainly not the rate a lender will offer you. When a lender says they will give you a discount of 1%, they are discounting off the SVR.

The amount of your loan will generally have a direct relationship to the amount of discount offered. If you decide to choose a variable interest home loan, a lender will generally offer you a discount on the variable rate anywhere between 0.10% and 0.70%, depending on the size and features of the loan. Larger loans with low LVRs can attract a discount of up to 1.4%. 

Categories of variable interest rate loans are the basic variable rate loans, which often feature lower interest rates. These loans tend to have limited features, although most will give you an option to redraw.

To understand offset account benefits, you must first understand that the interest rate payable on your home loan is calculated every day.

An offset account is a separate savings account directly linked to your home loan. The balance held in the offset account is offset daily against the loan eg $330,000 loan balance – $20,000 offset balance – interest is calculated on that day at 310,000

The account is usually only available with a variable rate loan and not on basic, low-interest loan. To maximize the benefit of your offset account, you would deposit your pay in to the offset and receive a deduction on the interest due on your loan. This interest saving is then used to reduce the outstanding principal or debt.

If you have a Viridian line of credit, you have the freedom and flexibility to withdraw funds from your home loan up to the agreed limit, or increase your home loan balance to access additional funds. This option is ideal for smaller renovations to your home.

These are packages offered by lenders that, for the payment of an ongoing fee, offer a range of discounts and special features on their products. The main features are:

• Discounted interest rate
• Fee-free offset account
• Annual fee free credit card

Other features vary between lenders.

If you're planning renovations, consolidating your debts or just need extra cash, topping-up your home loan could be the perfect solution.

You can borrow additional funds on your existing home loan without taking out a separate loan, saving time and paperwork. You can also take advantage of a lower interest rate compared to some other loan types.

This phrase is bandied about a lot but it’s an ethical consideration for all good mortgage brokers. While a lender may loan you a maximum borrowing amount, it’s essential that you determine your own borrowing capacity when searching for your new home. A good mortgage broker would never encourage you to borrow outside your ability to repay.

When applying for a loan, most lenders will request that you show proof of “genuine savings”. This is to show that you have a deposit, but more important that you have an ability to save money.

You’ll need to have at least three months’ worth of savings to assess your genuine savings.

A lender may ask to see bank statements to show you are contributing on a regular basis, and to prove you haven’t borrowed an amount of cash to put in your account for show.

A few examples of genuine savings are:

• Regular deposits to your savings account over a three-month period;
• Term deposits that have been active for three months;
• Equity in an existing property;
• Gifts from family, or an inheritance that has been held in your savings account for a minimum of three months.

There are a number of loan products with different lending institutions that allow for a "payment holiday". Some examples of situations when a payment holiday could be needed include maternity leave or financial hardship. Note: please take careful note that a repayment holiday is not an interest-free period. The interest accrued in this time will be added on to your loan. 

Not all lenders and products offer this feature, and you should consider first if this is a viable option.

No! One of the reasons I made the leap from a bank manager to mortgage broker was so I could offer my customers real options. The only criteria I use in determining which bank to lodge a loan with is what is best for you.

I am accredited with 30 lenders and they all want your business. I receive payment from the lender you choose. For a lender, it’s similar to paying commission to a bank manager based on home loan sales.

We’re located at 767a Nicholson St, Carlton North in Melbourne. For locals, that’s the Brunswick Road end of Nicholson Street.