Compare current variable rate home loans

What is a variable rate home loan?

What makes a variable rate different from, say, a fixed rate home loan, is that the interest rate goes up and down over time.

For example, one month your variable rate might 5.50%, and then it could change to 5.75% the next. While that’s a big change, plenty of Aussie borrowers have experienced big shifts like that in their home loan interest rates over the past few years. 

Why do variable rates change? 

Variable rates are heavily tied up with the cash rate.

The cash rate is the official interest rate set by the Reserve Bank of Australia (RBA) and influences how much it costs a lender to borrow money, either from the RBA or from each other. 

When the cash rate goes up, the RBA makes it more expensive to borrow money, which means lenders charge borrowers more, to maintain their profits.

When the cash rate comes down, the RBA makes it cheaper for lenders to borrow money, and variable home loan rates tend to drop.

Borrowers with a fixed rate home loan won't be affected by the RBA cash rate in the same way, as their rate is locked for the duration of their fixed term.

What features do variable rate home loans have? 

Variable rate home loans are among the more popular types of mortgages in Australia, which isn’t surprising when you consider the array of interest-saving features commonly available. 

When you compare variable home loans, keep an eye out for features like: 

Interest rate 

One of the most important features of variable home loans are the interest rates. Your interest rate will determine how much your monthly repayments will be, so find a home loan with a competitive rate. Pay attention to the comparison rate, since this is a more accurate number for cost calculations. 

Additional repayments 

A common feature of variable home loans, the ability to make unlimited additional repayments means you can pay off more of your loan quicker, without being penalised. 

Redraw facilities 

If you end up making additional repayments and suddenly find yourself needing that extra cash, then a variable home loan with a redraw facility will allow you to withdraw those extra repayments. Some lenders offer free, unlimited redraws, while others will put caps or attach fees for redrawing your funds. 

Offset accounts 

Some variable home loans come with offset accounts, which are essentially transaction accounts that are linked to your home loan. The idea is that whatever money you store in your offset, is subtracted from your loan amount before you’re charged interest on it. 

This can help reduce the amount of interest you are charged on your home loan, because if you’ve got a $500,000 home loan, and $20,000 in your offset account, interest is only calculated on $480,000 of your remaining balance. 

Fees

Add up ongoing or upfront fees like application or property valuation fees and compare them with your interest rate. Sometimes, you are better off paying a small ongoing fee to get a lower interest rate.

How to get a low variable rate home loan 

The fact of the matter is, lenders are much more likely to offer you a low variable rate home loan if you’re a safe bet – meaning, you’ve got a stable income, good credit history, are a diligent saver, and don’t spend recklessly. 

In short, they want to you borrow money from them, so long as you can pay it back. 

If you’re looking for cheap home loans, here are some tips to help you find what you’re after: 

Compare variable home loans 

Your first port of call when finding a low variable home loan rate is to see your options. Simply type in how much you want to borrow and how much the property is worth and hit search. 

Comparing can help you shortlist a few lenders with low rates before you decide to apply for the first one you see. 

Opt for smaller lenders over the Big Four 

A less obvious hack to getting a lower variable rate home loan is to compare smaller lenders with rates from the Big Four banks. 

For instance, the average variable rate† in the Mozo database for non-Big Four home loans comes in at 6.77% p.a. In contrast, the average Big Four variable rate† is 7.31% p.a. On a $400,000 home loan, this equates to a difference of $138 per month, or $41,402 over 25 years.

So, there’s some merit in digging for more competitive variable rates from lenders outside of the Big Four.

Save up at least a 20% deposit 

Lenders prefer borrowers with at least a 20% deposit, as it not only proves that you’re a good saver with a stable income, but it means you’re already a fifth of the way to paying off the property. 

Your deposit amount will also place you into a specific loan-to-value ratio (LVR) tier. These LVR tiers often advertise lower rates for those with LVRs below 80% (i.e. those with a 20% deposit). In general, the lower your LVR is, the lower the variable rates you can access.

For example, the lowest variable rate home loans on average† are available for those with 60% LVRs, according to the Mozo database, while the highest are available for those in the 95% LVR tier. 

What types of variable rate home loans are there?

Variable home loans are the most popular type of home loans in Australia. Most banks, lenders, and credit unions will have a number of variable home loan deals to choose from. Options may include:

Introductory rate home loan

Sometimes called “honeymoon” rate loans, these offer a low variable rate for an initial set period (usually 1-3 years) which reverts to the loan’s standard variable rate once the introductory period ends. Always compare using the revert rate, not the introductory rate.

Basic home loan

If you don’t need bells and whistles like an offset account or unlimited free extra repayments, then a basic home loan could be a good money saving option.

Full feature loan

A full feature home loan is a loan that has flexible features like an offset account, free extra repayments, and a free redraw facility. You might pay an annual or monthly service fee.

Variable rate package

If you’re borrowing over $150,000 you may qualify for a packaged home loan, where you get a lower interest rate if you bundle other products like a credit card and bank account with your home loan provider. This usually comes with an annual package fee, but the rate discounts can be enormous.

Standard variable rate

This usually refers to a 'reference rate' that the provider uses to calculate margins for the rates applied to the rest of their variable rate loan options. Standard variable rates are not restricted by LVRs or loan amount. These usually include features like offset accounts and split loan rates.

†Average variable rate in the Mozo database on a $400,000 home loan for an owner occupier, paying principal and interest, with <80% LVR. Correct as at 5 July 2024.