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Types of Interest Rates - VariableThe most common interest rate type in Australia is the variable rate. Under this form of interest rate, the initial and ongoing rate is set by the lender. The lender has the right to change the interest rate during the loan's life. Because of intense competition between lenders in the variable rate market, most lenders will only change variable rates for existing loans in response to movements in the official cash rates, as announced by the Reserve Bank of Australia ("RBA"). Therefore, you can generally be confident that your rate will change only in response to movements in the RBA's official cash rate. Advantage: Variable rate loans generally have no restrictions or penalties for making additional repayments on your loan; therefore you may be able to pay off your loan sooner. Additionally variable rates will obviously advantage you if interest rates fall, as your monthly minimum repayment will fall. Disadvantage: Variable rate loans will disadvantage you if rates rise, because your repayments will increase. |
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