Compare the best variable rate home loans

An offset account is a transaction account linked to your home loan that offsets your home loan balance. You can have a 100% offset where every dollar in that account offsets what you owe on your mortgage and your interest. So, if you have a $600,000 mortgage and $20,000 in your offset account, you'll only be charged interest on $580,000. Alternatively, you can have a partial offset where only a percentage of your account balance offsets your loan balance.

Most variable rate home loans allow you to make additional repayments without penalty fees. This makes it easier to pay down your loan faster and save on interest.

Allows you to withdraw any additional repayments you've made on your home loan. It frees up cash and provides flexibility in managing finances. You can withdraw additional repayments for any reason.

You can choose your repayment frequency (e.g. weekly, fortnightly, or monthly) or opt for an interest-only repayment option for a period of time.

This feature allows you to transfer your existing loan to a new property if you decide to sell and buy a new home.

You can split your home loan into fixed and variable portions, balancing stability and flexibility.

Lenders use the same formula to calculate variable and fixed interest:

• Your home loan balance is multiplied by your interest rate, and divided by 365 (days) to calculate your daily interest.
• Your daily interest totals each day in a month are added together to arrive at the monthly interest amount.
• The calculated interest forms part of your repayments based on your chosen frequency (e.g. weekly, fortnightly, or monthly).

For a home loan of $600,000 with an interest rate of 6.00% p.a. and monthly repayments, the calculation might look like this:

• 600,000 x 0.06 / 365 = 98.63 in daily interest
• $98.63 x 30 days = $2,958.90 in monthly interest

Your interest payable reduces each month as your home loan balance reduces, assuming your interest rate stays the same.

The amount of interest you’re charged can fluctuate with a variable rate but also based on the number of days in a month. Since interest is calculated daily, longer months (with 31 days) will result in higher interest.

You can choose a variable rate on most owner-occupier and investor home loan products. The minimum eligibility requirements include:

• Australian citizenship or permanent residency (or being married or in a de facto relationship with an Australian citizen or permanent resident)
• You must be over 18 years of age
• Meet the lender’s minimum income threshold
• Have a deposit or equity to contribute towards the purchase of the home
• A good credit score

Variable rate mortgage

The interest rate and repayments on a variable rate home loan go up and down over time. A variable home loan provides the flexibility to make unlimited additional payments and features that reduce your interest bill. There are usually no penalties for paying off a variable loan early or switching to a fixed or split home loan.

Fixed rate mortgage

A fixed home loan has a fixed rate and repayments for a period of time (1-5 years typically). This gives you certainty over your repayments and protection from sudden rate increases during the fixed rate period. However, some fixed rate loans don’t allow you to make additional repayments without penalty, and you may not have access to extra features like an offset account or redraw.

Exiting a fixed rate loan before the fixed period ends will typically mean you will incur break costs. Depending on your loan amount and your remaining fixed term, this could amount to hundreds or thousands of dollars in break costs.

Choosing whether you should go variable or fixed will depend on your financial situation, current market conditions, and what lenders are offering at any given time. If you’re unsure you can speak to a mortgage broker about your options.

Switching to a variable interest rate will happen automatically after your fixed rate expires. If you decide to switch to a variable home loan (or split your home loan) before your fixed term ends, you may incur break costs. You may also have to pay refinancing fees as you’d essentially be taking out a new home loan to pay off your current one.

If you're considering switching from a fixed rate home loan to a variable rate loan, weigh the benefits against the break fees and other expenses. You might find it will be cheaper to wait until the fixed period ends. Alternatively, you may find that switching now could save you more money in interest over the long term (e.g. if you secure a lower interest rate or get access to features that can help you save on interest), despite break costs.

It can be difficult to ‘beat the banks’ and predict which way rates will go, as it depends on various economic factors like the inflation rate, employment figures, and the overall performance of the Australian economy, to name a few.

Historical trends can provide some indication but aren’t accurate predictors of future rate movements. It’s best to pay attention to statements from the RBA, or ask a mortgage broker who may have a good sense of which way rates are moving.

Banks can theoretically change rates on their variable home loans at any time. But, you’re more likely to see changes in your mortgage rate after the RBA announces an adjustment to the cash rate.

When the cash rate changes, lenders typically adjust the variable interest rates on their mortgages in the same direction (up or down) as the cash rate decision. Historically, cash rate changes (and subsequently rates on variable home loans) have occurred in 0.25% or 0.50% increments, although there is no set limit.

Your lender will generally send you a letter in advance (usually via your online banking) to inform you when your variable interest rate is changing and how it will affect your home loan repayments based on your current home loan balance.

The Reserve Bank of Australia (RBA) changes the official cash rate

This is the biggest factor influencing variable rates on home loans. When the RBA adjusts the cash rate, it affects lenders’ borrowing costs, which are typically passed on to borrowers, either in full or partially. Each lender has the discretion to decide whether, and by how much, to adjust their rates.

How the Australian economy is performing

Supply and demand for credit, consumer spending, employment figures, and inflation, all of which are indicators of economic performance, can influence interest rates. The RBA is responsible for monetary policy in Australia and will take into account these factors when setting the target cash rate.

Competition in the market

Lenders may adjust their interest rates to remain competitive in the market or follow market trends. For example, if the major banks increase or decrease their rates, other lenders tend to follow in the same direction. These are known as ‘out-of-cycle’ rate changes.

Yes, you can generally make additional repayments and pay off your variable rate home loan early without penalty. It will depend on the lender and the terms of your contract.

If you can’t decide between a variable or fixed rate home loan, you can ‘hedge your bets’ and opt for a split home loan. This can help manage the impact of interest rate rises with a fixed portion, while still offering the flexibility and features of a variable rate loan. You can choose the proportions of your split, whether it's 50/50, 60/40, or 70/30.