Why variable rate home loans are so good right now.
With interest rates now rising, I recommend you look at strategies to put yourself in a better financial situation to absorb the increasing cost of your home loan.
The strategy I am discussing here is switching now to a lower variable rate home loan.
It’s a prime moment to do so, as banks are offering some seriously good deals.
If you snap up one of these low variable rates today, it means you can build yourself a buffer as rates continue to rise.
This strategy is for you if you have:
- An owner occupied home loan; AND
- You are on a variable rate OR you are coming off a fixed rate in the next 4 to 6 weeks; AND
- You have more than 20% equity in your property.
Key benefit:
- Based on the assumption that if we can lower the interest rate that you are currently on, then you are in a better situation to afford more interest rate rises.
You can also listen to this on you tube if your prefer.
Also see my other strategies to reduce your mortgage repayments right now which are rolling all your debts into your home loan, and switching your investment property loan to interest only repayments.
Let’s get into it.
Should I switch to get a better variable rate home loan?
One of the best ways to reduce your home loan repayment each month is to get a lower interest rate on your home loan.
Despite what you might have heard, the truth is that right now, we are seeing some amazing deals on variable rate home loans.
In fact, some variable rate home loans have considerably lower interest rates than fixed loans.
This might seem surprising to you, given all the media hype about rates going up.
However, you can see for yourself (in the table below) that even the major banks are offering some super sharp variable rate home loans (rates as at 16 June 2022).
Based on a $700,000 loan, with an LVR of less than 70%.
Now could be a very good time to refinance to a lower variable rate.
Earlier in the year when interest rates were at record lows, I sent out some commentary on a few occasions advising you against refinancing in general.
This is mainly because I wasn’t seeing competitive deals from the banks on variable home loans.
At the time, the banks were offering good fixed rates instead (and my advice is always to avoid fixing 100% of your loan).
What has changed now is that as we head towards the end of the financial year and into July, I’m noticing that some banks, even the Big 4, have some of the sharpest variable rates I’ve seen in the last few years.
Now could be a very good time to refinance to a lower variable rate home loan for a better deal, now is the time to do this.
If you are already on a variable rate home loan, or your fixed rate home loan period is about to expire in the next 4 – 6 weeks, then this may be a good strategy for you.
You can hear more about why I recommend switching to a variable rate home home on you tube.
Watch on you tube as I explain why now is a good time to switch to a variable rate home loan.
You may get an even lower rate if you have equity in your home?
You will get a better rate if you have got at least 30% equity in your home.
A lot of people who have owned for 12 to 18 months are now in that position because of how the markets moved.
Some banks will offer you an extra 0.1% off your rate with 30% equity as opposed to 20% equity in your home.
What is the benefit staying on a variable rate home loan?
The main concern my clients have with variable loans is that interest rates are expected to rise.
However the lower the rate that you’re on currently, the less that rise will impact you.
Let me give you an example.
Say you’re on 3% currently.
If rates rise by 1%, then your rate obviously goes up to 4%.
But if you refinance right now, you may be able to get your current rate lowered to say 2%.
Then an interest rate rise of 1% will take you back to closer to where you are at 3%.
The point is, that by snapping up a lower rate right now, you are creating a buffer, so your monthly income / expenses can handle the interest rate rises without you needing to cut back on other expenses.
Getting prepared for future interest rates increases by switching to a lower variable rate right now, means that over the next 6 to 12 months as rates rise, it will not cost you as much as it could otherwise have.
It’s about using the competition in the market between banks, to get yourself a better deal right now.
What are the downsides of variable rate home loans?
Being on a variable rate home loan means your monthly loan repayments will rise as the RBA continues to increase rates.
Some clients do find this uncertainty difficult to handle, given that interest rates are looking to rise further over the next 6 to 12 months.
However, keep in mind that you don’t necessarily want to fix your loan, because the interest rates to fix are a lot higher than what you can get right now on a variable rate home loan.
If you do still want to fix your home loan, I recommend doing what we call a split loan.
This is where a portion of your home loan is fixed and a portion is variable.
For example, you may fix 40% of your loan and have 60% on a variable rate.
I highly recommend you book a free call with me here to discuss the best option for you.
Further reading
Want to understand more about what’s involved in refinancing? See our complete guide to refinancing here.
My name is Victor Kalinowski and I’m a mortgage broker at Blackk Mortgage Brokers, with offices based in West End (Brisbane) and Burleigh Heads (Gold Coast). If you’re interested in getting in touch for some advice, book a call instantly at a suitable time or call us on 07 3122 3628 today.
The information contained within this page is general in nature. It serves as a guide only and does not take into account your personal financial needs. Before you act on this information you should seek independent legal and financial advice. Copyright Blackk Mortgage Brokers 2023.
