Variable Rate Mortgage
With a variable rate home loan, the interest rate on your mortgage can change. If official interest rates go down, your interest rates go down too. However, if the Reserve Bank increases interest rates, your home loan rate will probably rise too. If official interest rates fall, the variable rate home loan can save you money, but you need to consider the risk that your mortgage payments could rise in the future.
If you are contemplating a low introductory or honeymoon rate for an initial period you will save initially, but you must find out what the rate will be when the 'honeymoon' is over and what your mortgage payments will be. The lowest initial interest rate doesn't always mean the better deal.
Now, there are two types of variable rate mortgages.
Basic variable loans are a 'no frills' version offered by the lenders. These loans usually offer the lowest rate - around 1% lower than standard variable or fixed rate. Standard variable loans come with more options such as offset, redraw and split loan capacity.
Standard variable loan rates will be slightly higher than a basic variable, but if you intend to use the extra features then this may be the rate for you. If not, you will be paying for features that you don't need.
Split rate home loans.If you are really unsure over fixed or variable, then you could consider taking out a split variable/fixed loan. Most commonly, the split would be 50/50 or 60/40. This allows you to make early repayments on part of the loan, without exposing the whole amount of the loan to rising interest rates. (Penalty rates will still apply if you quit the fixed portion of the loan early.)
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