Variable Home Loan Rates

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What is a variable rate home loan?

A variable-rate home loan is a home loan where your interest rate will change with the market. Over the term of your loan, the rate will likely go up and down in line with the RBA cash rate. It’s the opposite of a fixed-rate loan where your rate doesn’t change for the entire fixed term.

How do you compare variable home loan rates?

There are hundreds of home loan lenders in Australia, virtually all of which offer a variable-rate mortgage. You'll likely have plenty of options to choose from - here's what to look for when you're trying to figure out which is best for you.

Rates

The interest rate you'll pay on your loan is likely the biggest factor in deciding which product is right for you. Even small differences in rates can make a huge difference over a loan term - say you've got a 30 year $500,000 home loan. A 5.50% p.a. interest rate would mean about $2,839 in monthly repayments (worked out using the Savings.com.au home loan repayment calculator) and a total interest bill of more than $522,000 over the life of the loan. Reducing the rate by just 0.5% to 5% p.a. means paying $2,684 per month (saving $155) and just over $466,000 over the loan term (saving $56,000).

Another thing to consider is the lender's track record of passing on RBA rate changes to customers, particularly when rates go down. If your lender doesn't pass a cut on to you in full, you could miss out on lower repayments.

1. Per the most recent RBA data, the average variable rate on outstanding home loans in Australia is currently 5.5% p.a. for owner occupiers and 5.7% p.a. for investors. The most recent peak for owner occupiers was from November '23 to August '24 when the average variable rate was 6.4% p.a., while investment rates peaked at 6.5% p.a. from October '24 to January '25. Conversely, the lowest rates have been over the past six years was from January to April 2022 when the average OO variable rate was 2.9% p.a., 3% p.a. for investors.

Features

Some variable rate home loan products have additional features such as:

• Offset accounts

• Redraw facilities

• Unlimited extra repayments

• Flexible repayment options (pay weekly, fortnightly or monthly)

• Top-up options if you need to borrow more down the track

Not all loans offer these features - some "basic" products are stripped back to keep rates low. You'll need to work out whether the trade-off is worth it for your situation.

Fees

A home loan with the lowest variable rate can still end up costing more if it comes with high fees. When comparing loans, have a look whether the lender charges:

• Upfront application fees

• Monthly or annual service fees

• Valuation or legal fees

• Break costs or discharge fees if you plan to refinance later

Again, this is where the comparison rate becomes handy - it bundles these fees into one number so you can easily judge the real cost of the loan.

Some online lenders offer low-fee or no-fee variable home loans with competitive rates and decent features, often outperforming traditional bank products.

Finding the best variable-rate home loan in Australia

When the time comes, there's a few things that can help you find the best variable loan product for you:

• Shop around: There's a huge range of lenders out there offering variable-rate home loans. If you're only considering the big four banks, you're potentially missing out on the perfect product for you.

• Consider what features you need: A redraw facility or offset account could help you save plenty of money. Products with these inclusions sometimes have slightly higher rates, but it might end up worth it if you're able to use 

• Don't forget fees: Account keeping, break costs, establishment fees - variable-rate home loans can have plenty of hidden charges that make your mortgage more expensive. Looking at the comparison rate as well as the advertised rate can help you figure out the true cost of each loan.

Benefits of choosing a variable rate

Flexibility

A variable-rate home loan is a popular choice for many borrowers in Australia largely due to the flexibility and freedom of option. Not only does a variable-rate home loan usually allow you to make extra repayments on top of your scheduled instalments without penalty, it can also save you money over the course of your mortgage. By making additional repayments on a regular basis, you may be able to reduce the length of your mortgage which in turn, reduces the overall amount of interest you'll pay across the loan term.

Benefit from falling interest rates

Additionally, a cash rate drop or interest rate decrease could save you on your monthly interest bill. Iff the RBA announces a cash rate drop and your lender decides to pass the change onto its customers, you'll have less interest to pay off. But remember, the market can swing both ways so it's best to be prepared for increases as well as decreases.

More features

Variable-rate home loans also offer appealing features such as redraw and offset facilities, which borrowers tend to take advantage of in order to cut down the length of their home loan.

Easier to refinance

If you're considering refinancing your home loan, it may be easier switching to a different lender or product when you're on a variable rate as you'll avoid paying hefty break fees that often come with fixed-rate loans.

Cons of variable-rate home loans

Repayment uncertainty

Since variable-rate home loans generally move in sync with Australia's cash rate, the amount of interest you're required to pay is at the hands of the market and the economy. If the cash rate increases, your lender could put interest rates up which means you'll pay more on your mortgage. This could make it challenging trying to set and stick to budgets when rate rises can happen unexpectedly.

Rates can go up as well as down

A cash rate increase will likely translate to your rate, and therefore repayments, going up. Fixed rates mean you're protected from rate increases at least until the fixed term expires.

Dominic Beattie

Savings.com.au Editor

"Aussies love a variable rate. Unlike the US, UK and New Zealand - where fixed rates rule - new home lending here skews variable. Fixed-rates can still make sense at times, but the flexibility of a variable-rate loan is the big draw."

What types of variable-rate home loans are there?

Most lenders offer different types of variable-rate home loans. The most common include basic variable-rate home loans, introductory (honeymoon) discount variable-rate loans, and standard variable-rate home loans.

Basic variable-rate home loan

As the name suggests, a basic variable-rate loan is a simple home loan that tends to offer less features in return for a lower interest rate and fees (ongoing and at application). For example, a basic home loan may have a discount of 0.20% p.a. on its interest rate, but no offset account. If you aren't fussed about all the bells and whistles, then a basic home loan might be a good option.

Introductory discount variable-rate home loan

An introductory home loan, sometimes known as a 'honeymoon' loan, offers a discounted interest rate for an initial set period, usually one to three years. Once the period ends, the rate switches to the 'ongoing rate' or 'revert rate.' When this happens, you want to be on the lookout that your revert rate is competitive, as you don't want to end up paying more than necessary.. This type of variable-rate home loan can have limited features so it's always best to check with each lender on what they offer.

Standard variable-rate home loan

With flexible features like redraw, offset accounts, and the ability to make extra repayments, standard variable-rate home loans are among the most common in Australia. However, the borrower generally pays a higher interest rate compared to a basic variable-rate loan.

Variable-rate home loans can vary depending on the lender. Some lenders will offer features like an offset account, while others may only allow you to make extra repayments. Some offset accounts will be 100% offset, while others may only be 50%.

Ultimately, while a variable interest rate works the same way in principle, the rate itself may be different between lenders as well as the mortgage's accompanying features.

When should you choose a variable rate?

Brooke Cooper

Editor at Your Mortgage

The choice between a variable and fixed home loan rate shouldn’t be a ‘set and forget’ decision. Variable rates offer greater flexibility and allow borrowers to benefit from rate cuts, but fixed rates still play an important role in managing risk.

Fixing your rate may make sense if you’d struggle to meet repayments in the event of rate rises. You might also consider fixing your rate if repayment certainty is more important to you than potential savings from future cuts or the use of features like offset accounts (which aren’t commonly offered on fixed rate mortgages). And, of course, if you expect the RBA to lift the cash rate in the near term, fixing the rate on part or all of your home loan could help hedge against higher repayments.