With interest rates changing over time, many Australians are rethinking how their home loan is structured.
A variable rate home loan can offer flexibility and the opportunity to benefit if rates fall, but it can also increase your repayments if rates rise.
In this guide, we explain how variable rate home loans work, how rates change, the pros and cons, and what to consider if you’re thinking about switching or refinancing.
What is a variable rate home loan?
A variable rate home loan has an interest rate that can move up or down over time.
Unlike a fixed rate loan, where your interest rate stays the same for a set period, a variable rate changes in response to economic and market conditions.
If your lender increases the rate, your repayments may go up. If they reduce the rate, your repayments may decrease.
How variable rate home loans work
Variable rates are influenced by several factors.
The Reserve Bank of Australia (RBA) sets the official cash rate, which influences, but does not control, the rates lenders offer. Lenders also consider funding costs, competition, and internal policy decisions when setting their rates.
This means lenders can adjust variable rates when:
The RBA changes the cash rate
Funding or operating costs shift
Market competition changes
When your rate changes, your repayments may change too.
Many borrowers use features such as offset accounts or extra repayments to help manage repayment changes over time.
How rate changes affect your repayments
Even a small rate change can make a noticeable difference to your repayments.
For example, on a $600,000 loan with a 25-year term:
At 6.00% p.a., monthly repayments are approximately $3,866.
At 6.50% p.a., repayments increase to approximately $4,054.
That’s a difference of around $188 per month or more than $2,200 per year.
Using an Aussie Mortgage Repayments Calculator can help you estimate how rate changes could affect your budget.
Figures are illustrative only , assume principal and interest repayments, and do not reflect current rates.
Features commonly linked to variable rate loans
Many variable rate home loans offer flexible features.
Feature | How it works | Why it can help |
Offset account | Links your savings to your home loan, reducing the balance interest is calculated on | May reduce the total interest paid |
Redraw facility | Allows you to access extra repayments if needed | Provides flexibility in emergencies |
Extra repayments | Pay more than the minimum repayment | May reduce loan term and interest |
Refinancing flexibility | Often no break costs for switching | Makes it easier to adapt to changing goals |
Some features may involve additional fees. Always check with your lender or broker.
You might also be interested in: What is a mortgage offset account?
When a variable rate home loan might suit you
A variable rate home loan may be worth considering if:
You want flexibility to make extra repayments
You’re comfortable with repayments that may rise or fall
You plan to refinance or sell in the short to medium term
You want to take advantage if interest rates decrease
It may not suit you if:
You prefer certainty in your repayments
You have limited buffer in your budget
You would find repayment increases difficult to manage
Every borrower’s situation is different. Speaking with an Aussie Broker can help you assess what fits your goals.
Potential benefits and drawbacks
Potential benefits
Flexibility to make extra repayments
Access to offset and redraw features
Potential interest savings if rates decrease
Often easier to refinance or switch
Potential drawbacks
Repayments can increase
Less certainty compared to fixed loans
Budgeting may be harder if rates fluctuate
You might also be interested in: Home loan redraw facilities explained
Switching from variable to fixed or split
You can usually switch between loan types, either with your current lender or by refinancing to a new one.
Before switching:
Review your financial goals
Compare available loan types
Consider fees, including break costs (especially when leaving a fixed rate loan)
Check whether rate lock fees or refinance costs apply
Speak with your broker before applying
Switching loans can involve costs and may not suit everyone. It’s important to understand the implications before making changes.
Make sure your loan matches your goals
Variable rate home loans can offer flexibility and potential savings opportunities, especially if you actively manage your loan and budget for possible rate increases.
If you’d like help deciding whether a variable rate loan suits your goals, book a free^ chat with an Aussie Broker to compare options and understand what may work for you.
Find an Aussie Broker near you.
