Whether you’re a recent home owner, or have been chipping away at your loan for years, it’s always useful to know the different ways variable home loan repayments can be structured to choose an option that best suits your needs or adjust the amount if your circumstances change.
Depending on your bank, there could be multiple types of repayment methods, so check with your financial institution to see what’s available. We take a closer look at some common options below.
Fixed/nominated amount
As the name suggests, a fixed amount is a set amount you nominate for each payment cycle. While this is an easy way to know exactly how much you’re paying and when, the amount won’t automatically adjust so you’ll have to update it if your minimum repayments change.
This isn’t as big of a deal if interest rates are decreasing as this lowers the minimum repayment amount for many people who chose to pay the extra off their loan, but it’s an important consideration as interest rates increase so you can adjust your repayment amount if necessary to ensure you don’t fall behind.
Minimum repayment amount
Slightly different to the above, your minimum repayment amount will vary to match the amount owing each month. This is a handy option if you just want to set and forget your repayments to move in line with any rate changes. Your minimum repayment amount will also automatically be divided if you select a payment frequency other than monthly – say weekly or fortnightly.
Paying off more than your minimum repayments
A handy feature of most variable home loans is that you can choose to make additional repayments, potentially saving thousands over the life of your loan. One way to do this is known as your minimum repayment plus a fixed amount extra that you choose to pay each month. This means your repayments will automatically vary in line with any rate changes, but you’ll also pay an additional amount on top of that, putting you in advance of your loan.
You can also select the frequency of your repayments – monthly, fortnightly or weekly. Having an advance amount is like having an emergency buffer. If for some reason you fall short or miss a payment, the amount will come out of your advance account. On eligible home loan accounts you can also dip into this money or ‘redraw’ for things like renovations.
What if I miss a repayment?
If you don’t have an advance amount and miss a payment or don’t pay it in full, this is known as going into arrears. It can happen for several reasons:
- Repayments have not been set up. It may be up to you to set up your repayments once your loan starts. Check this with your lender.
- Timing. Your repayment may come out earlier than when your funds are available if your particular repayment date falls on a weekend or public holiday.
- Insufficient funds. You select a fixed amount but the interest rate increases and you don’t adjust your repayments, or you forgot another bill was coming out and you’re a little short on the day.
Usually you will be charged a default fee at the end of the month when one or more payments are in arrears. Your financial institution may contact you if you go into arrears to check you are able to continue meeting your repayments. Whether the missed payment was accidental or you’re experiencing some financial difficulty they’ll be able to assist you in getting back on track.
Setting up or changing your minimum repayments
Your financial institution should be able to help set up and adjust your repayments, or you may be able to do it yourself online via internet banking or your banking app. You’ll need to know what your monthly minimum repayment amount is and select an account for the funds to transfer out of.
Your financial institution should always notify you of any changes to your variable interest rate and minimum repayment, so make sure your contact details and communication preferences (electronic or mail) are up to date.