Variable Rate Loans: The Pros and Cons for Builders

As a builder, you know that choosing the right tools for the job makes all the difference. The same applies when selecting home loan products - and variable rate home loans are one of the most popular options available. But are they the right fit for your financial situation?

Let's break down what variable rate loans are, how they work, and whether they align with your goals as a tradie in the building industry.

What is a Variable Rate Home Loan?

A variable rate home loan is a type of mortgage where the interest rate can move up or down over the life of your loan. Unlike a fixed interest rate home loan where your rate stays locked for a set period, variable interest rates fluctuate based on market conditions and decisions made by your lender.

When you apply for a home loan with a variable rate, your repayments can change throughout the loan term. If interest rates drop, your repayments decrease - which means you could pay off your loan faster. When rates rise, your repayments increase accordingly.

The Advantages of Variable Rate Home Loans

Variable rate home loans come with several home loan benefits that can work in your favour:

Flexibility with Extra Repayments

Most variable home loan rates allow you to make additional repayments without penalties. As a builder, you might have periods when work is steady and income is strong. During these times, you can throw extra cash at your loan amount to build equity faster and reduce the overall interest you'll pay.

Access to Home Loan Features

Variable home loan packages typically offer more home loan features than their fixed counterparts. These often include:

• Offset account or linked offset account to reduce interest charges
• Redraw facilities to access extra repayments if needed
• Portable loan options if you want to move properties
• The ability to split your loan between variable and fixed portions

Rate Discount Opportunities

Lenders often provide interest rate discounts on variable rate products. When you compare rates across different banks and lenders across Australia, you might find opportunities to negotiate rate discounts that can save you thousands over the loan term.

Potential to Improve Borrowing Capacity

If you're planning to expand your property portfolio or invest in property down the track, keeping your loan variable can help you improve borrowing capacity by paying down your loan faster with extra repayments.

The Downsides of Variable Interest Rates

Like any home loan option, variable rates come with considerations you need to weigh up:

Repayment Uncertainty

Your monthly repayments aren't fixed, which can make budgeting trickier. If you need lower repayments that stay consistent, or if your building work is seasonal, rate increases could put pressure on your cash flow.

Market Fluctuations

Interest rates respond to economic conditions beyond your control. While you might benefit from rate drops, rises can significantly impact your repayments and overall cost of borrowing.

Variable Rate vs Fixed Rate: What's Right for Builders?

When you're deciding between variable and fixed interest rate options, consider your circumstances:

Choose a variable rate if you:

• Want the flexibility to make extra repayments
• Value access to features like an offset account or mortgage offset
• Can handle some fluctuation in your repayments
• Believe rates might decrease or stay stable
• Want to pay off your loan faster when work is going well

Consider a fixed rate if you:

• Prefer certainty in your repayments for budgeting
• Are concerned about potential rate rises
• Want to lock in current home loan rates if they're at lower levels

Think about a split rate if you:

• Want the benefits of both products
• Can split your loan between variable and fixed portions
• Want to hedge against rate movements while keeping some flexibility

Many builders working with home loan specialists choose a split loan approach to balance security with flexibility.

Making Variable Rates Work for Your Building Business

As a builder, your income might vary depending on projects and contracts. Here's how to maximise the benefits of a variable rate home loan:

1. Use an Offset Account: Park your business income or savings in a linked offset account to reduce the interest charged on your home loan balance

2. Make Regular Extra Repayments: Even small additional amounts can significantly reduce your loan term and build equity faster

3. Review Your Rate Regularly: Current home loan rates change, so conducting a loan health check helps ensure you're still getting a good deal

4. Consider Your Loan to Value Ratio (LVR): A lower LVR can help you access better interest rates and avoid Lenders Mortgage Insurance (LMI)

Getting Started with Your Variable Rate Home Loan

When you're ready to apply for a home loan, whether it's an owner occupied home loan or your first home loan, the process involves several steps:

1. Home Loan Pre-approval: Getting loan pre-approval gives you a clear understanding of your borrowing capacity and shows sellers you're serious

2. Compare Home Loan Rates: A home loan rates comparison across multiple lenders helps you find the loan amount and interest rate that suits your situation

3. Review Home Loan Packages: Look at the complete package, not just the interest rate - consider home loan features, fees, and flexibility

4. Complete Your Home Loan Application: Gather your documentation and submit your application with help from a broker who understands tradies

Principal and Interest vs Interest Only

Most variable rate home loans offer both principal and interest repayments and interest only options. For owner-occupied properties, principal and interest loans help you build equity steadily and secure your financial future.

If you're looking to invest in property, interest only loans might suit your strategy, allowing you to claim maximum tax deductions while maintaining cash flow for other investments.

Calculating Home Loan Repayments

Calculating home loan repayments on a variable rate loan requires factoring in potential rate changes. Your repayments depend on:

• Your loan amount
• The interest rate charged
• Your loan term (typically 25-30 years)
• Whether you're paying principal and interest or interest only

Working with a mortgage broker who understands the trades industry means you can access home loan options from banks and lenders across Australia and get accurate calculations based on your specific situation.

Why Builders Choose Tradie Home Loans

At Tradie Home Loans, we understand the unique financial situations builders face. Whether you're self-employed, working on contract, or running your own building company, we know how to present your application to maximise your chances of approval at the lowest rates available.

We help you access home loan options from multiple lenders, compare rates properly, and choose the right home loan products to achieve home ownership, secure your future, and maintain financial stability.

Our team specialises in helping builders navigate everything from construction loans to refinancing, and we can explain your borrowing capacity clearly so you know exactly where you stand.

Variable rate home loans offer flexibility and features that can work brilliantly for builders who want to pay off their loans faster and take advantage of falling rates. The key is understanding how they work and whether they align with your financial goals.

Call one of our team or book an appointment at a time that works for you to discuss your variable rate home loan options and find the right solution for your building career.