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Variable home loans rates are the lowest they've ever been. They generally offer more flexible repayment options than fixed rate loans and the ability to make extra repayments. Compare current variable home loan rates and pay less in mortgage repayments using the table below.
variable rate
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A variable interest rate home loan is one that can vary. The repayments can rise or fall each month, depending on whether the lender decides to change the interest rate on that particular loan. An interest rate increase means your repayments rise, but a rate drop means your repayments could get cheaper. This is the opposite of a fixed rate, which remains the same during a set period of time.
Lenders raise or reduce their interest rates for a number of reasons, including:
Despite these reasons, variable rate mortgages don't usually change every month. On average, your home loan interest rate may only change once or twice a year.
Most lenders offer multiple variable rate home loans. The most common variable loan types are basic variable home loans, standard variable home loans and introductory discount variable rate loans.
There are big differences between these loan types.
Like it says in the name, these loans keep it simple. A basic variable loan has a lower rate than a lender's other products (usually) and doesn't have as many features. If you want a simple variable rate loan with no offset account, a basic loan is a good option.
These loans are often the lowest variable rate loans a lender offer – even lower than its basic loans, if it has those. But here's the catch: after that initial discounted period, the rate will revert to a higher variable rate.
Also, even though these loans are cheaper when it comes to interest rates, they can also be limited in features. For instance, they generally don't come with an offset account, which can be a meaningful way to pay less interest on your home loan. As attractive as the rate may be, this type of loan may not necessarily work for you if you need to offset a large amount of savings or money that might be coming your way, such as an inheritance.
Here's an example:
In plain English, this home loan starts at 1.99% for the first two years and then reverts to a higher (but still competitive) rate.
Introductory discount variable rates can be great home loans. You just need to be aware that the low rate won't last forever. And if it does jump up too high you should consider refinancing to a better rate.
Compare introductory discount variable home loans
Standard variable rates are a bit of a throwback. These are the benchmark variable rates used by the Big Four banks and some other lenders.
Standard variable rates are often considered to be a default offer. But these products have much higher rates than the most competitive loans offered by lenders.
The best variable rate home loan really depends on your needs as a borrower. If you're an investor planning to "flip" a property quickly you need a very different variable mortgage compared to an owner-occupier looking to buy their first home.
Here's what borrowers need to look at when searching for the right variable home loan rate:
With any home loan, a lower interest rate makes for a better home loan. A lower rate means lower repayments and it makes your home loan cheaper.
Here's a quick example using the same loan amount but with a 31 basis point (0.33%) difference in the rate:
| Details | Higher rate | Lower rate |
|---|---|---|
| Loan amount | $400,000 | $400,000 |
| Loan term | 30 years | 30 years |
| Interest rate | 2.50% | 2.19% |
| Monthly repayments | $1,580 | $1,516 |
| Savings (monthly) | N/A | $64 |
| Savings (yearly) | N/A | $768 |
| Savings (30 years) | N/A | $23,040 |
You can use a repayment calculator to see the difference between various rates or check the repayment column in the loan table above.
Even the lowest rate on Earth is not very useful if you have the wrong loan type. If you're looking to finance an investment property then you will need an investment loan. If you're buying or refinancing a loan for the home you live in then you need an owner-occupier home loan.
Beyond the loan purpose there's also the repayment type. Variable home loans can have either principal and interest repayments or interest-only repayments. And there are big differences between them.
Principal and interest loans mean you repay the loan (the principal) and interest charges together. This is the most common type of variable home loan, especially for owner-occupiers.
Variable interest-only loans let you avoid repaying any loan principal at first. This makes your repayments cheaper to start with. But over time, once you start repaying the debt your repayments jump up and you end up paying more in the long run.
Interest-only loans are more common for investors using specific investment strategies. But owner occupiers can use them too.
A variable loan's features can be useful, if you use them. For example, if you have extra savings, you can use an offset account to save the cash and minimise your interest payments. Or, a redraw facility might help you have access to money if you need it down the track.
If you don't need this feature, you can look for a loan without it, which might have a lower interest rate.
Extra repayments are a common feature on variable rate loans. Being able to make extra repayments can help you repay your loan faster and pay less interest. Although it's worth noting that if your loan has an offset account you can put the extra repayments there instead of making extra repayments. It has the same effect but gives you more control over the money.
A variable rate home loan can come with a range of fees. If the loan works for you and the interest rate is low, a few fees aren't so bad. But if you can avoid fees, then why pay more?
Another advantage of a variable rate loan over a fixed loan is that refinancing is cheaper. There may be a loan discharge fee, but exit fees no longer apply on variable rate loans. Some break costs may apply, such as the cost to deregister your mortgage with the government, and other statutory costs like these.
Compare more home loan options here
Every month (except January) the Reserve Bank sets the official cash rate. This rate affects the funding costs of variable home loan interest rates. If the rate rises, you can expect lenders to increase their variable rates. If the rate falls, most lenders will pass on some (or all) of the cut to their variable rate customers.
In 2019, the RBA cut the cash rate three times, in June, July and October and then it cut twice in March 2020. Each cut was 25 basis points (or 0.25%). This meant big savings for variable borrowers, with some lenders passing on close to the full 25 basis points each cut.
However, when the RBA cut the cash rate again in November 2020 lenders cut fixed rates instead. So the RBA's decisions are no longer a clear benchmark for what will happen to variable interest rates.
In 2010, the Reserve Bank raised the cash rate four times, which meant many variable borrowers found their interest rates increasing substantially.
While variable rates can change any time, there are several reasons many borrowers prefer them.
With a fixed rate home loan you are locked in for a specified period of time. While your rate won't change, it's harder to refinance or exit during the fixed period. The break costs to do so can run into the thousands of dollars.
Variable rate loans don't have that issue as there are no breaking costs on these loans.
You may be able to find a competitive fixed rate loan with an offset account, but you have a lot more options when it comes to mortgage features if you're shopping for a variable rate loan. The same goes for redraw facilities, which allow you to make extra repayments and then pull the money back out to spend if you need it.
Some fixed rate loans limit the amount you can make in extra repayments and restrict the amount you can redraw. It's always important to read the fine print to see if there are any fees associated with redraw and/or restrictions with minimum redraw amounts or frequency allowed, as some banks may charge you if you you need them to assist you with redraw over the phone or in branch, whereas online transactions are generally free. Make sure you read the fine print.
In recent years variable rates have reliably been lower than comparable fixed rate loans. According to Finder's lowest home loan rate tracker, in November 2018 the lowest variable rate owner-occupier loan had a rate of 3.54%. The lowest fixed rate then was 3.74%. That's a 20 basis point difference.
In January 2021 the lowest fixed rate was 1.89%, beating out the lowest variable rate of 1.99%. Looking across offerings on the market it's clear that a lot more fixed rates start with a 1, while most of the lowest variable offers start with a 2.
With both fixed and variable rates being so low at the moment the choice to fix is more complex than ever. You could actually lock in a very competitive rate for several years. At the same time, the Reserve Bank of Australia has made it fairly clear that the low rate environment will be here for the next few years. This means there's less urgency to fix.
Read more on fixed versus variable rates
Australian borrowers don't have to pick between variable and fixed. Many lenders allow you to split your loan into fixed and variable portions. You can divide your loan amount into equal fixed and variable portions, or in any proportion you choose.
Splitting lets you enjoy the stability benefits of a fixed rate and the flexibility of a variable rate. It's a little complicated, but your lender or a mortgage broker can help you calculate the best split for you.
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We have a current Reverse Mortgage with Bankwest which was established several years ago. Can you tell me what the current rate is we would be incurring and if it is a Variable Rate and any hidden charges involved.
Hi Keith,
Thanks for getting in touch! It is helpful to know that while we compare variable rate home loans on our page, we do not have the actual current rate is per lender and in this case, Bankwest. It would be best to get in touch with your preferred lender to obtain more information on monthly repayments.
Hope this clarifies! Feel free to reach out to us again for further assistance.
Best,
Nikki
I am wanting to consolidate all my outstanding into my home loan. I also want to change my financial institution to have a better lower interest rate. Also will it be better to have variable or fixed with what I am wanting to do? Please can you help?
Thanks
Hi NH,
Thanks for getting in touch with Finder. I hope all is well with you. :)
Let me address your concerns one by one.
1. I am wanting to consolidate all my outstanding into my home loan.
You may want to consider refinancing to consolidate debt. This type of home loan allows you to pay out your credit card and personal loans under your mortgage. Instead of paying off multiple debts, you pay off all of your debts with one home loan repayment each month. This also means your debts are only charged at a home loan interest rate – which can be much lower than a credit card or personal loan interest rate.
2. I also want to change my financial institution to have a better lower interest rate.
Please refer to the guide I shared with you above. When you’re on the page, please refer to the table under the subheading “Which lenders offer debt consolidation options when refinancing?” By doing so, you will see different financial institutions that might be able to help you.
3. Also will it be better to have variable or fixed with what I am wanting to do?
While we can’t provide personalised recommendations, it would be a good idea to know the difference between fixed and variable home loans.
On that page, you will know more about variable and fixed interest home loans, which include their advantages and disadvantages.
Finally, please speak to a mortgage broker to help you explore your different options. They have the right skills and knowledge to ensure you make the right decision.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua
How many financial institution offer construction loans and what are things to look out for before choosing a financial institution.
Hi Safia,
Thanks for reaching out to Finder.
You may want to check out lenders from our Construction Loans page. It also includes tips and information on how to choose a construction loan and some other frequently asked questions which you can find at the bottom of the page.
Before applying, please ensure that you meet the eligibility criteria and requirements and to read the details, as well as the relevant Product Disclosure Statements/ Terms and Conditions of the option before making a decision and consider whether the product is right for you.
Once you’ve chosen a lender, you may click on “Go to Site” to be directed to their main website where you can start your application.
Best,
Maria
So I just re-financed my home to go to a cheaper rate at a diffrent bank and my property got valued at 600.000 when I only have 300,000 left on property so where does the other 300,000 go.can I take some for me and put in on top of the loan for eg: 50k for me then loan will be 350,000 instead of 300,000 since I don’t need the whole 600,000 to move over
Hi James,
Thanks for your question.
The difference of $300,000 is your home equity which you can use for investment purposes or for a wide variety of reasons such as pay up-front university fees for your children, for an extended overseas holiday, or home repairs and cosmetic renovations. For more details, please feel free to read our guide on refinancing home loans.
Cheers,
Liezl
Hi If I reach retirement age and still have a home loan of say $100000, what is the longest term you can pay interest only repayments?
Thanks
Carol
Hi Carol,
thanks for the question.
This will depend on the lender, as each will have its own unique lending criteria. It might be a good idea to consult a mortgage broker to find out the longest term available to you for your situation.
I hope this helps,
Marc.