Why Should Prosthodontists Consider a Variable Rate Loan?

A variable rate home loan lets your repayments move with your lender's rate, and that gives you room to pay extra, use an offset account and refinance when your life changes. If your income varies through the year, as it can when building a practice or as complex cases come and go, that room is often the main draw.

This article covers how a variable rate works, what you give up, and which features are worth asking about. We work with dental professionals. You can read more on our home loans for prosthodontists page.

What Is a Variable Rate Home Loan?

A variable rate home loan has an interest rate that your lender can raise or lower at any time. When the rate moves, your minimum repayment moves with it.

Lenders usually set their variable rates with the RBA cash rate in mind, but they are not required to pass on every change in full or at the same time. Rates also differ between lenders, which is why comparing home loan products matters. Two loans that look alike can have quite different rates, fees and features.

The main trade-off is certainty. A variable rate can fall, but it can also rise, so your repayments may go up when you least expect it. It helps to test your budget against a higher rate before you commit.

Why Variable Rates Can Suit a Changing Income

Variable rate loans often allow extra repayments and redraw, which can suit an income that is uneven. Many fixed rate loans limit extra repayments, and some charge break costs if you exit early, so a variable loan usually gives more room to move.

If you are early in a prosthodontic career, or moving from an associate role to practice ownership, your income may jump or dip within a year. Paying extra in strong months and falling back to the minimum in quieter ones is much easier on a loan that allows it. If you are self-employed through a practice, our self employed loans for dentists page explains how lenders assess that income.

The trade-off is that extra repayments are only helpful if you actually make them. A flexible loan does not reduce your debt unless you use the flexibility.

How an Offset Account Works With a Variable Loan

An offset account is a transaction account linked to your loan, and the balance in it is subtracted from the loan balance when interest is calculated. This means money you hold in offset reduces the interest you pay while staying available to you.

As an example, consider a prosthodontist with a $900,000 variable loan at an illustrative 6.75% p.a. who keeps $60,000 in a linked offset account. Interest is worked out on $840,000 instead of $900,000. At 6.75% p.a., that is about $4,050 less interest over a year, which is $60,000 multiplied by 0.0675. The money stays accessible, so the prosthodontist can still use it to cover tax time, equipment costs or a quiet month.

The trade-off is cost. Loans with offset accounts can carry a higher rate or an annual package fee, so the interest you save needs to outweigh that cost. Savings only apply while the money sits in the account, and a smaller balance gives a smaller benefit. Any tax questions about your situation should go to your accountant.

Variable Rate or Fixed Rate: Which Is Right for You?

A variable rate gives flexibility and exposure to rate rises, while a fixed rate gives repayment certainty for a set period but usually limits extra repayments. Neither is right for everyone, and the choice depends on how much certainty you need.

Some borrowers choose a split loan, with part fixed and part variable. This gives some certainty on one portion and keeps the other portion open for extra repayments and an offset account. The cost is added complexity, and you may face break costs on the fixed portion if you change lenders or repay it early. If you already have a fixed loan, our fixed rate expiry page explains your options when the term ends.

Comparing Variable Home Loan Rates and Features

When you compare variable rates, look at the comparison rate, the annual fees and the features together. The lowest advertised rate is not always the lowest overall cost.

A useful approach is to compare the same loan amount across lenders using a repayment calculator, with the same term and repayment type. Then check whether each loan has a linked offset, redraw, and the ability to switch between principal and interest and interest only. Interest only loans can lower repayments for a period, but you pay no principal during that time, so the debt does not fall. Our interest only loans for dentists page covers when this is used.

It is also worth asking about rate discounts. Our page on getting a lower interest rate explains how that conversation works.

Pre-Approval and Borrowing Capacity Before You Choose

Pre-approval shows you how much a lender may be willing to lend before you make an offer, so you can shop with a clear budget. It is not a final approval, and the lender will check the property and your circumstances again later.

Lenders also test your repayments at a higher rate than the one you will pay, so your borrowing capacity is based on that buffer. You can learn more about how this works on our borrowing capacity page, and about the process on our getting loan pre-approval page.

A variable rate loan works best when it is matched to the way you earn and save. Call one of our team or book an appointment at a time that works for you, and we will talk through variable home loan options with you.

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