How is interest calculated on a variable rate loan?

Interest is calculated on the principal sum you owe daily. To find out how much interest you’ll pay each day based on your outstanding loan debt, use the following formula: P (principal loan sum) x R (decimal interest rate) divided by 365 = Daily interest For example, if you were working out the daily interest on a $400,000 loan with an interest rate of 2.65% p.a., your calculation would look like: $400,000 x 0.0265 / 365 = $29.04 interest per day

Why does the Reserve Bank change interest rates?

Technically, the Australian Reserve Bank doesn’t change interest rates on home loans; only the lenders can do that. The Reserve Bank makes changes to the cash rate, which is the rate that banks use to loan to each other (sometimes referred to as the ‘underlying cash rate’). It makes changes as part of broader monetary policy to control Australia’s inflation rate and other economic indicators.

Which is better: fixed rate or variable rate loans?

Neither option is right for every borrower in every situation. How you decide to pay off their loans is a very personal decision, so no one loan can be right or wrong. That’s why it pays to do your research and use Savvy to help make sure you secure a loan that’s right for you.

Will the type of property I want to buy affect the interest rate I’m offered?

Yes – the type of property you want to buy will have an effect on the interest rate you’re offered. Lenders will offer varying interest rates for different types of properties, such as units and apartments versus houses, and also for different types of borrowers, such as first homebuyers , refinancers, owner-builders, owner-occupiers and property investors.

Can I choose which features I get with my variable loan?

Yes – there are so many variable rate home loans on the market at the moment that you can compare offers to find the one that’s perfect for you: a loan that has all the features you need at the lowest possible interest rate.

What are some of the eligibility criteria for a variable rate loan?

In Australia, there are some basic eligibility criteria for all home loans. These do not change depending on the type of loan you’re after. To get a home loan you have to be: at least 18 years old either an Australian citizen or permanent resident, or married or de-facto with one earn a steady income from stable, consistent employment

What can I do if interest rates go up and I can't afford the repayments on my variable loan?

Research company Roy Morgan found that over more than a decade, over half a million Australians are experiencing mortgage stress at any one time on average, so you’re not alone if you find yourself in this position. It’s important to talk to your lender as soon as you realise you may not be able to make a loan repayment, as many lenders are very understanding and have hardship options available, including mortgage ‘holidays,’ freezes, reduced repayments for a period of time and loan term extensions to reduce monthly repayments.