Variable Home Loan Rates Comparison

Variable rate home loans tend to offer borrowers more features than fixed rate home loans. While the available features will often differ from one loan product to the next, they may include the following:

Offset account

An offset account is a transaction account that is linked to your mortgage. It works just like a standard bank account, but gives borrowers the opportunity to reduce their payable interest. The funds you deposit into your offset account help to 'offset' or reduce the interest owing on your mortgage. For example, if you have $550,000 owing on your mortgage, and $50,000 in your offset account, you would only be charged interest as if you had a loan balance of $500,000.

Extra repayments

Some home loans may allow you to make additional repayments on top of your monthly repayments without charge. Making extra repayments onto your mortgage could get you ahead of schedule and come closer to making an early exit from the home loan, reducing the total interest repayments you’d make, and shaving years off your loan term. 

Redraw facility

A redraw facility allows you to withdraw extra home loan repayments you’ve made, subject to the lender's criteria. This way you can pay down your loan faster and reduce your interest charges, and know that you can access those extra funds if you need to. The amount you may withdraw can be capped by some lenders (typically around 80%), so be sure to read the terms and conditions first.

Split interest rates

A split rate home loan allows you to divide your interest repayments into two rate types: fixed and variable. Borrowers can enjoy the stability of a fixed interest rate on one portion of the loan, while also taking advantage of the flexibility of a variable interest rate on the other portion. It doesn't have to be a 50/50 split either, as you can divide your repayments into, say, 70/30 fixed and variable, depending on what you prefer.

Most variable rate home loans have loan terms of 20 to 30 years. A bank will typically offer you a variable interest rate from day one of your home loan, unless you specifically request a fixed rate. 

In contrast, a fixed rate home loan will have a pre-set interest rate for the first 1 to 5 years of the loan term, before it reverts to variable for the remainder of the term - unless you refinance to another fixed rate home loan.

Keep in mind that over a 20 to 30-year loan term, it is expected that interest rates will fluctuate, partially due to changes to the national cash rate from the Reserve Bank of Australia (RBA). For more information on how interest rates on home loans are influenced, and whether or not your repayments are set to rise or fall, please read check out our RBA Cash Rate Tracker Page.

It's hard to say whether a fixed or variable home loan rate will be cheaper for your specific mortgage. The key difference between the two is that fixed rate home loans have a set interest rate for a period of time - usually between one and five years.

Mortgage lenders typically adjust their home loan interest rates in accordance with the RBA’s cash rate. If a lender expects the cash rate to rise, you’ll generally find that fixed rates are higher than variable, and vice versa for fixed rates with a falling cash rate. It may be worth doing a little research on the current cash rate andwhere experts are suggesting it may move to (if at all). 

Keep in mind that variable rate home loans may also offer more financial flexibility than fixed rate loans, with features like an offset account or redraw facility. While these perks may come with a higher interest rate, for some homeowners access to these features is more valuable than nabbing the lowest rate on the market for a no-frills basic home loan. 

Check out our RBA cash rate page for more information on interest rate movements. 

When comparing your home loan options, it's important to look at more than just the interest rate that's on offer. Here are some important factors to consider:

Introductory rates

Lenders may offer introductory variable home loan rate discounts, or honeymoon rates, as special offers to entice new borrowers onto their books. The introductory period may even include perks like fee waivers, cashback offers and more. 

After a set period of time, these introductory rates will then revert to a generally higher standard variable rate. If you choose a home loan offering a low introductory rate, ensure you know not only the exact period of time of this honeymoon period, but also what the lender's standard variable rate is. This way you can consider refinancing to a new, low rate loan once this period has ended if you find the ongoing rate is too high.

Features

Variable rate home loans are more likely to come with helpful features, such as an offset account or a redraw facility. However, some lenders may charge higher rates or fees for access to these features. Carefully consider the ongoing costs of a variable rate home loan with features before you apply, as you may find that starting with a no-frills basic variable rate option is more affordable to begin with - especially for first home buyers.

You can always refinance after a few years to a home loan with features once you've built up some equity and also grown your own savings and income in this time. 

The size of your deposit

You’re often more likely to enjoy lower variable interest rates on your mortgage if you can afford a larger deposit on your property. This added security helps to reduce the lender’s risk. The deposit size required for a mortgage varies by lender, but 20 per cent is considered the ideal loan size for nabbing a more competitive loan option.

If you can’t afford a full deposit on the property you want, there may still be home loan options available to you. Some lenders offer mortgages with a high loan to value ratio (LVR), where you pay a smaller deposit and borrow a greater percentage of the property’s value. However, your lender may require you to pay Lender’s Mortgage Insurance (LMI) to keep them protected in case you default on your loan.

Alternatively, you may be able to have a parent or other close relative serve as your guarantor, using the equity in their property to guarantee your home loan in lieu of a deposit. This option can allow you to sidestep LMI, though it may also put the guarantor’s finances at risk if you were to default.

Keep in mind that, depending on your state or territory and whether you're a first home buyer or not, you may have to pay stamp duty on your property. This can range in the tens of thousands of dollars, so factor this potential cost into your deposit budget.

How does the market look?

Variable rate home loan rates are subject to market fluctuation, which can impact your repayments. In fact, this reason is why you may have heard friends or family describe variable rate home loans as dangerous or risky. It's important to understand how these fluctuations might affect your budget and cash flow, and whether you could comfortably afford any potential increases in your repayments. 

Before you apply for a variable rate loan, take stock of the market and what economists and experts are suggesting could happen to the cash rate. Hop on news sites, like the Australian Financial Review, or our news page, to keep up with market trends. RateCity’s summary of the latest big bank interest rate predictions could come in handy here.