Variable rate home loans

When you apply for a home loan, one of the most important decisions you’ll need to make is whether you should choose a variable or fixed interest rate loan. We’ll help you to understand the advantages and disadvantages of a variable rate before you start comparing the variable rate home loans we have on offer.

By   |   Updated 25th June 2020

Comparing variable rate home loans for $450,000 over 30 years

HSBC Home Value Loan (Owner, Principal and Interest) LVR Up to 80% Promotional Offer

On HSBC's website

HSBC Home Value Loan (Owner, Principal and Interest) LVR Up to 80% Promotional Offer

Interest rate (p.a.)

2.65%

Comp rate^ (p.a.)

2.66%

Max LVR

80.00 %

Application fee

$0.00

Monthly repayment

$1,813.34

Total repayment

$652,802.40

Highlights

  • A Relationship Manager to guide you through the application process.
  • Unlimited free extra repayments with flexibility to redraw additional payments for free online.
  • No ongoing monthly service fee.

Bank promo

  • Promotional offer available on new borrowings from $50,000, rate available from 23 March 2020 and apply by 31 July 2020. Rate not available to non-residents.
CUA Achieve Variable Home Loan ($250K-$499K - Owner Occupier, Interest only)

On CUA's website

CUA Achieve Variable Home Loan ($250K-$499K - Owner Occupier, Interest only)

Interest rate (p.a.)

3.30%

Comp rate^ (p.a.)

2.94%

Max LVR

80.00 %

Application fee

$835.00

Monthly repayment

$1,970.80

Total repayment

$709,488.00

Highlights

  • Get the best of both worlds – a low rate home loan for loans between $250,000-$499,999 and extra features.
  • Save on interest with mortgage offset - offset up to $15,000.
  • Enjoy $0 ongoing fee and free redraw.
  • The maximum LVR is inclusive of LMI.
ME Basic Home Loan (Owner, Principal and Interest) LVR 80% or less

On ME Bank's website

ME Basic Home Loan (Owner, Principal and Interest) LVR 80% or less

Interest rate (p.a.)

3.17%

Comp rate^ (p.a.)

3.19%

Max LVR

80.00 %

Application fee

$0.00

Monthly repayment

$1,938.72

Total repayment

$697,939.20

Highlights

  • Enjoy $0 application fee
  • Fee-free redraw
  • No ongoing fees
Reduce Rate Slasher Variable Home Loan - LVR up to 80% (Owner Occupier) (Owner, Principal and Interest)

Reduce Rate Slasher Variable Home Loan - LVR up to 80% (Owner Occupier) (Owner, Principal and Interest)

Interest rate (p.a.)

2.39%

Comp rate^ (p.a.)

2.40%

Max LVR

80.00 %

Application fee

$440.00

Monthly repayment

$1,752.42

Total repayment

$630,871.20

Highlights

  • Get a low variable rate home loan and pay less interest.
Smart Home Loan 80 (Owner, Principal and Interest)

On loans.com.au's website

Smart Home Loan 80 (Owner, Principal and Interest)

Interest rate (p.a.)

2.63%

Comp rate^ (p.a.)

2.65%

Max LVR

80.00 %

Application fee

$0.00

Monthly repayment

$1,808.61

Total repayment

$651,099.60

Highlights

  • Explore loans.com.au's award-winning, low-rate home loans with added personal service for each stage of your property investing journey.
ME Flexible Home Loan with Member Package $400k - <$700k (Owner, Principal and Interest) LVR 80% or less

On ME Bank's website

ME Flexible Home Loan with Member Package $400k - <$700k (Owner, Principal and Interest) LVR 80% or less

Interest rate (p.a.)

2.84%

Comp rate^ (p.a.)

3.29%

Max LVR

80.00 %

Application fee

$0.00

Monthly repayment

$1,858.61

Total repayment

$669,099.60

Highlights

  • Discounted rates
  • Options for a repayment holiday
  • 100% offset account
ME Flexible Home Loan with Member Package $400k - <$700k (Investor, Principal and Interest) LVR 80% or less

On ME Bank's website

ME Flexible Home Loan with Member Package $400k - <$700k (Investor, Principal and Interest) LVR 80% or less

Interest rate (p.a.)

3.13%

Comp rate^ (p.a.)

3.57%

Max LVR

80.00 %

Application fee

$0.00

Monthly repayment

$1,928.91

Total repayment

$694,407.60

Highlights

  • Discounted rates
  • Options for a repayment holiday
  • 100% offset account

Learn about variable rate home loans

Our team share their top tips for comparing home loans with a variable interest rate.

  • FAQs

So how do I choose between a variable rate and a fixed rate?

Compare loans and find one with the features you need and that you will actually use. For example, there’s little point in looking for a loan with a redraw facility and offset account if your budget is so tight that you rarely have any spare funds for making extra repayments or for parking in an offset account. But just because your budget is strained when you first take on the loan, you may find things easier later on, so remember to plan for the future.

Deciding which loan features you need or don’t need will often determine whether you go for a flexible, feature-rich variable rate loan or an inflexible but comfortingly predictable fixed rate loan with fewer features.

What are the advantages of a variable rate home loan?

  • Flexible repayment system: Fixed interest rate home loans do not usually allow borrowers to make extra repayments in order to pay the loan off earlier. By fixing the rate, the lender has calculated exactly how much profit it needs to make on your loan. If you pay it off early you’ll pay less interest and the lender will lose some of its profit. But variable rate home loans usually allow you to make extra repayments, so you can choose to pay the loan off faster and save money — possibly many thousands of dollars over the life of the loan.
  • Offset account: A variable rate home loan is much more likely to have an optional offset account. An offset account is a bank transaction account held with the lender providing your home loan. You can leave in your offset account any spare cash you may have, and the amount will be deducted from your remaining loan account balance for the purposes of calculating your periodic interest charges. So an offset account will reduce your interest cost, although it won’t have much effect if you rarely have any spare cash. Fixed rate home loans do not usually come with an offset account.
  • Redraw facility: A variable rate home loan is much more likely to have redraw facility. If you use the flexible repayment system to make additional or higher loan repayments, your loan principal will reduce at a faster rate than strictly required by the lender. But if the day arrives when you need some extra cash — for an emergency, say, or for home renovations or a new car — you can withdraw some or all of the extra repayments you have made. Fixed rate home loans do not usually come with a redraw facility.
  • Easier to refinance: Fixed rate home loans are rather difficult to wriggle out of without paying substantial fees. Variable rate home loans are easier to terminate if you see a better deal down the track, and the process will cost less.
  • Periodic repayment amount will reduce if interest rates fall: If interest rates are falling and your lender’s standard variable rate goes down as a result, your required periodic payment amount will also reduce. But don’t bank on this, because interest rates are volatile. Many borrowers sensibly choose to continue making the same repayment amount, even if the lender notifies them that the required amount has gone down.

What are the disadvantages of a variable rate home loan?

  • Budget uncertainty: Periodic repayments for a fixed rate home loan are set in concrete. You know exactly how much you will have to pay each week, fortnight or month — exactly the same amount throughout the term of the loan. But with a variable rate your periodic repayments will go up or down whenever the lender’s standard variable rate changes. This makes it much harder to budget for repayments.
  • Periodic repayment amount will increase if interest rates rise: If interest rates are rising and your lender’s standard variable rate goes up as a result, your required periodic payment amount will also increase. If you stretched yourself to the limit when taking on the loan, you may struggle to meet the higher repayments now required. In this situation, discuss your problem with your lender at the earliest opportunity. You need to avoid the worst case scenario – defaulting on your loan and having your home repossessed by the lender.

What is a variable rate home loan?

The interest on a home loan can be charged at either a fixed rate or a variable rate.

If the rate is fixed, it will never change during the term of the loan.

If the rate is variable, it can go up or down at any time, when the lender changes its standard variable rate. A lender may change its standard variable rate in response to a change in the Reserve Bank of Australia’s official cash rate, because this rate affects the lender’s own borrowing costs.

But the lender is not obliged to pass on to its borrowers any or all of the change in the Reserve Bank’s cash rate, even though the federal government may urge them to do so if the rate goes down. The lender may also decide to change its standard variable rate for other reasons, usually justified by competitive forces or profitability changes.

Which rate is usually higher, a fixed rate or a variable rate?

It depends on how lenders view the future of the interest rate market. They employ economists who examine current and likely future economic indicators and market forces, and try to predict whether interest rates both in Australia and globally will go up or down within a given period, and by how much. They use this data to calculate the fixed interest rates they offer, after building in a profitability margin.

So if the lender believes that its own borrowing rates will rise in the future, the fixed interest rate it offers to customers will be higher than its current standard variable rate. But if the lender believes that interest rates are likely to decline, it will probably offer a fixed interest rate that is lower than the current standard variable rate.

Most home loan borrowers will not have a better understanding of the interest rate market than professional economists, so the best way to choose between a fixed and a variable interest rate is not by comparing the two kinds of rates on offer and choosing the lowest. It’s more important to look at the advantages and disadvantages of each kind of interest rate.

The advantages and disadvantages of a fixed interest rate loan are explained on our ‘Fixed rate home loans’ page.What are the advantages of a variable rate home loan?

Will I have to make any repayments during the interest-free period?

Yes. Even though you don’t have to pay any interest during the introductory interest-free period, it’s not a "spend and forget" card. You will still need to make the minimum repayment each month, usually an amount equivalent to 2% – 3% of your account balance. So if you made purchases to the value of $2,000 during the first month and the minimum repayment rate was 2.5%, you’d be required to make a repayment of at least $50 on the following ‘payment due date’ shown on your account statement. If you spent another $2,000 in the next month, your account balance would then be $3,950 ($2000 – $50 + $2000) and your next minimum repayment would be $98.75. In other words, the more you spend, the greater your minimum repayment will be, but you won’t make any significant reduction in the outstanding balance if you only make the minimum repayment each month. That’s why it’s important to set aside (preferably in an interest-earning bank account) enough cash to pay off your balance in full at the end of the interest-free period.

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