Aaron explains why borrowers pick variable rate mortgages: flexibility to make extra payments, use offset accounts, and redraw funds without penalty. Variable rates have low exit costs, unlike fixed rates that lock you in. He suggests mixing both or reviewing your choice over time.
Why would we take out a variable interest rate? Hey, it's Aaron from Diagnostics and Finance. Variable rates are probably one of the most common rates that we have today in the market. Variable rates have the most flexibility related to extra repayments, offset accounts and being able to pay out your home loan altogether. There's no real exit fees these days. There's a discharge fee and there's also the interest to the date that you discharged the loan. But there's not typically big exit fees when you have a variable rate. So why take a variable rate? A variable rate always makes sure that you can take in account any changes in the interest rate. If the interest rate drops, that may come into your savings and if the interest rate rises, typically you would be paying a little bit more on that. So it's the fine balance between the flexibility and the market stability as well. So if you are looking at a variable rate, the flexibility is that you can have an offset account redraw and you can pay out your loan a little earlier as reverse to the fixed rate where it's a bit more locked in. But you can also have best of both worlds where you can have some fixed and some variable to balance your budget. If you, if you want to have it all variable, which is a lot of the cases that I talk to, a lot of people are going variable just to start it off. And over the next few months we do get in contact to review whether that is still the case and if anything wants to change. In the last two or three months, people have potentially felt the pinch of the fixed rate where they've done it prior to the last two rate cuts. So it is an interesting animal, the variable rate. It can go up, it can go down. But the main reason people choose the variable rate is the flexibility to earn a little bit more money and put it off the loan. And also just to take into account some of the other fancy features with offset accounts redraw and just some surplus money. But remember, you are the one earning probably a little bit more money than what you need to repay off your mortgage. So it's quite common to have the ability to have the flexibility to put more money in, whether it is a fixed rate or a variable rate. Hey, it's Aaron from Diagnostics and Finance. Have a great day.
