In the midst of house-hunting and searching for lenders, conveyancers, and building and pest inspectors, you're sure to come across variable rate home loans.

But what exactly are these loans and will they suit your property purposes?

Let's take a look.

What is a variable rate home loan?

As the name suggests, a variable home loan is variable when it comes to changing interest rates.

So, when the Reserve Bank of Australia (RBA) makes its monthly cash rate announcement, your variable home loan will change - or not, depending on the announcement.

In comparison, fixed-rate home loans' interest rates are fixed - or unchangeable - for the term of the loan.

In this way, variable loans can be excellent when interest rates are dropping, or at least fairly low, as they were through much of the 2010s, as your finances can take full advantage of such dips (unlike fixed-rate loans).

But when interest rates are on the rise - as they are now with more expected - variable loans will shift to match this changing tide, damaging any benefits enjoyed in lower rate periods.

Variable loans can also offer lower interest rates than their fixed-rate cousins - sometimes.

An expected rising cash rate - such as the ones we're currently seeing - will generally see lenders raise their fixed rates higher than that of their variable ones.

In this way, lenders can make the most of the higher popularity of fixed-rate loans in such periods.

For the same reason but in the opposite way, if lenders believe the cash rate will drop, their variable rates will shift higher than their fixed ones.

Also unlike fixed-rate loans, variable loans are highly flexible, allowing mortgage holders to make extra repayments without fees.

They can also offer non-fixed-rate benefits such as offset accounts and redraw facilities as well as other potential changes during the life of your loan.

Variable home loan benefits

• Flexibility and extra features ie additional repayments without fees, offset accounts and redraw facilities
• Lower repayments - if interest rates drop
• Lower interest rates than fixed-rate loans (sometimes)

Variable home loan drawbacks

• Financial uncertainty especially in period of rising interest rates
• Possibility of mortgage stress
• Higher repayments - if interest rates increase

Who does a variable home loan suit?

If you're happy to weather interest rate storms such as the one we're currently experiencing, variable home loans are certainly for you.

As we've said, the flexibility of variable loans may be worth such storms, especially in the long run.

What are my other options?

As we've noted, you can always try fixed-rate loans or the compromise of a split loan if you believe a variable loan won't suit you.

Fixed-rate loans can certainly offer more budget security as can the fixed-rate component of a split loan.

We're here to help

Whatever home loan road you wish to take, we’d love to help you travel it!

We can find you the best home loans from more than 40 of Australia’s biggest banks and specialist lenders and we can also help you refinance your loan to help you keep more money in your pocket.

So, give us a call today at Lending Loop.