Mortgage types – Standard Variable Rate & Basic Variable Rate loans
There are hundreds of different mortgage products on the market that can generally be categorised into the different types we’ve highlighted.
Standard Variable Rates
Standard Variable Rate mortgages are Australia’s most popular type of home loan. The interest rate and your repayments vary up and down with movements in the lenders rate for the term of the loan. The term is generally 25- 30 years.
The Standard Variable Rate is usually the mortgage lender’s highest rate and by shopping around you should be able to obtain a better deal.
When comparing the various mortgages available in the market, it’s worth noting that, when comparing mortgages, it’s best to compare the monthly amount you’re quoted and upfront fees as well as the Comparison Rate. You may find that a product with a low Comparison Rate has high upfront costs, making it less worthwhile if you intend to move property in the earlier years.
The Standard Variable Rate (SVR) is the standard rate of interest that mortgage lenders use and like it says, it is variable. This is because it is indirectly linked to the Reserve Bank base rate – so whenever that goes up, the underlying cost to lenders goes up and typically so will your mortgage rate and mortgage payments.
However, SVR Mortgages aren’t exactly the same as the Reserve Bank base rate; they’re usually set around 1-2% higher and differ depending on the mortgage lender. This makes this type of mortgage very expensive.
An SVR mortgage; is also the rate you are automatically switched to when your initial (fixed rate, honeymoon, capped rate) offer period expires. As a result it’s good to think about re-mortgaging a few months before you come out of your early repayment period to ensure you are paying as little as possible on your mortgage. Remember, it’s never too late to move to a cheaper deal, just ensure your mortgage broker checks the terms and conditions and makes you aware if there is any early repayment charge.
Basic Variable Rate mortgages
Many mortgage lenders also offer Basic Variable Rate loans with lower interest rates, but with less of the additional ‘features’, such as overpayments and draw downs that may be offered by a Standard Variable Rate loans.
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