Compare Variable Rate Home Loans - Australia

Variable rate home loans can be attractive when interest rates remain the same or go down, because you’re likely to pay less interest than you would if you took out an equivalent fixed interest loan. In some cases, you might even pay less interest if interest rates go up a little, depending on the available fixed rates at the time.

Choosing a suitable variable rate loan can be a headache. That’s why we put together this guide. It’ll give you facts to help you compare a range of variable rate home loans, so you have tools to help you pick a suitable loan and buy that home or investment property you’ve been dreaming of.

A variable rate home loan is any home loan that charges a rate of interest that can change. To answer that question more completely, however, we first need to explain something called the cash rate.

On the first Tuesday of every month (except January), the board of the Reserve Bank of Australia (RBA) has a meeting at which members decide, among other things, what the cash rate will be for the next month. The factors that affect the RBA’s cash rate decisions are wide and varied, but will include inflation.

The cash rate is one factor, along with other lending market conditions, that can impact the interest rate lenders pay when they borrow from each other, and changes to the cash rate can have a flow-on effect on home loan interest rates. You see, most lenders will borrow money to lend to their customers, so if they want to make a profit, they have to ensure they charge interest rates that are above the rate they pay when they borrow funds.
Because the cash rate and lending market can change, lenders will change the amount of interest they charge their customers. And that’s why the interest rate can change in a variable-rate home loan or at the end of a fixed-rate period.
Lenders do offer fixed-rate home loans, but when they do, depending on the market outlook, they may choose a higher interest rate than what they’re offering to their variable-rate customers. This can help them cover market changes and cash rate increases. For example, if lenders believe the cost of lending will increase over the next three years, they may have a higher fixed interest rate for that period than the current variable rate.

The mechanics of a variable rate home loan are the same as for other home loans. You submit an application. The lender reviews your situation. It issues a loan offer, which includes the loan amount, loan term (typically 25 years to 30 years), all the one-off and ongoing fees and charges, and the full set of terms and conditions. And then you sign the contract and the lender will transfer you the full loan balance at settlement.

The difference arises when you begin repaying the loan:

• A fixed rate loan will have a constant interest rate for a specified period of time (the fixed rate period), which is often the first one to five years of the loan term. After that, the interest rate becomes variable, unless you refinance on a new fixed rate.
• A variable rate loan interest rate can change at any time (with some notice) and variable rate home loans tend to offer more variety and flexibility depending on the lender and product you choose.

A variable rate home loan offers a number of benefits compared with fixed rate home loans. If you're considering your home loan options, here are some reasons you might decide to consider a variable rate home loan:

• Flexibility. A variable rate home loan generally gives you flexibility to make extra repayments or redraw funds without being penalised, which may help you to pay off your loan faster, and save on interest costs.
• Potential for reducing interest rates. With a variable rate home loan, your interest rate can rise and fall with the market as the Reserve Bank of Australia makes decisions on whether to adjust the cash rate each month, which means that, if interest rates fall, your loan interest rate could fall with them. Likewise, if the cash rate increases, your interest rate could go up with it. .
• Easier to switch. If you decide you want to switch to a different loan type, lender or product, it's often easier to do so with a variable rate home loan compared with a fixed rate home loan.
• Access to features. Many variable rate home loans come with features like offset accounts and redraw facilities, offering opportunities to save or have access to funds if you need them.

While variable rate home loans can come with many benefits, it's important to note that they can also come with some risks. For example, and perhaps most notably, if interest rates rise, your repayments can also rise, which could put pressure on your finances.

If you're considering a variable rate home loan, it's important to carefully weigh up the pros and cons of each product you’re considering to work out which one is right for you. A financial advisor or mortgage broker can also help you make an informed choice based on your individual circumstances.

The amount you can borrow with a variable rate home loan will be determined by a number of factors, including your deposit, income, expenses, assets and debts, whether you're an owner occupier or investor, as well as your credit score. Lenders use this information, along with how much you’re asking for, to calculate whether they think they can safely lend you that amount. In general, the higher your deposit and income, and the lower your expenses, the more you'll be able to borrow.

As well as your financial situation, the amount you can borrow can also be impacted by the lending policies of a lender and the value of the property you're interested in purchasing. For example, some lenders may have a maximum loan-to-value ratio, which is the ratio of the loan amount to the value of the property (this being the bank value, which may be lower than the market value). Depending on their policy, this may limit the amount you can borrow, even if your financial situation would otherwise allow you to borrow more money.

The interest rate that your lender charges on your variable rate home loan can also have a significant impact on the amount you’re allowed to borrow. When interest rates are higher, this will increase your monthly repayments, reducing the amount you can afford to borrow. On the other hand, a lower interest rate will lower your monthly payments, allowing you to borrow more. Of course, interest rates can rise and fall, so it’s important to factor that in, and ensure you have a financial buffer to draw on if they go up.

One of the biggest barriers to buying a home can be saving enough money for a home loan deposit, especially considering the current state of the housing market in Australia. So it’s important to understand just how much you need to save for a variable rate home loan deposit, so you can set clear and realistic financial goals to make it happen.

Variable rate home loans are a popular option for home buyers in Australia because they offer flexibility and freedom. However, when it comes to saving for a home loan deposit, the amount you need to save will vary based on several factors, including the property's bank valuation and the loan-to-value ratio (LVR).

If you prioritise saving for a decent home loan deposit, it can potentially save you money in the long run. That’s because saving a higher deposit can lower your monthly repayments and reduce the interest you pay over the life of the loan. The minimum deposit that lenders will accept is often 5 per cent of the property's value, and while some will accept lower in certain circumstances, many will require a higher amount. And if your deposit is below 20 per cent of the property's value, you may be required to pay lenders mortgage insurance (LMI).

LMI is an insurance policy that helps protect the lender in the event that you default on your home loan. The cost of LMI will vary based on a range of factors including the size of your deposit and how much you borrow, so it's important to factor this into your home loan calculations.

Variable rate home loans often come with fees, and these will differ depending on the lender and the product. Before deciding on a home loan, it’s important to understand the fees involved, and make a decision about whether you are able to afford the repayments and fees associated with the loan. Some fees you may be asked to pay on a variable rate home loan include:

• Establishment fee or application fee. This is a one-time fee charged by a lender for setting up your home loan. The fee covers costs such as processing your application, credit checking, and preparing the loan documents.
• Ongoing Fees. Ongoing fees are charged periodically throughout the life of the loan. They can include monthly service fees, annual fees, and account-keeping fees.
• Valuation fee. A valuation fee may be charged by the lender to assess the value of the property you want to purchase. This fee can range from a few hundred dollars to several thousand dollars.
• Switching fees. If you decide to switch from a variable rate home loan to a fixed rate home loan, or vice versa, with the same lender, they may charge a switching fee.

It is possible to find a variable rate home loan with no fees (or very low fees), but it’s important to remember that a no-fee loan may come with a higher interest rate or less flexible features compared with a loan with fees. Before making a decision, it is important to consider the overall cost of the loan, including both the interest rate and the fees.

Calculating how interest is charged on a variable rate home loan can seem complicated at first, but with a few key pieces of information and a bit of simple mathematics, you should be able to figure out how much interest you will be paying on your loan. A variable rate home loan calculator can be a helpful tool to help you estimate how much interest you’ll pay, but it's important to understand how that calculation works so that you can make informed decisions about your own finances.

Interest rates can fluctuate on a variable rate home loan, based on market conditions, which means that the amount of interest you pay on your loan can change over time. To calculate the interest you will pay, you’ll need to know the loan amount, the interest rate, and the length of the loan in months.

Let's use an example to see how this works. Say you’ve taken out a $300,000 variable rate home loan with an interest rate of 4 per cent. The loan term is 30 years, or 360 months. To calculate the interest charges, you would use this formula:

Loan amount x (interest rate / 12) x (length of loan in months) = total interest charges

So, in this example: $300,000 x (0.04 / 12) x 360 = $86,400

This means that you will pay a total of $86,400 in interest charges over the life of the loan. Of course, this calculation assumes that the interest rate remains constant for the entire loan term, which is unlikely in the case of a variable rate home loan. The actual interest charges will likely be higher or lower, depending on what interest rates do during the life of your loan.

We’re not going to tell you which variable rate home loan to choose because there’s no best loan — they each have pros and cons that will impact your goals and situation differently.

However, once you’ve decided you want to apply for a variable rate home loan, you may want to compare a range of home loan options. By comparing variable rate loans, you can be confident you’ll have information to help you pick a home loan that’s suitable for you.

Our main home loan comparison page includes a guide to comparing home loans. You can update it specifically for variable rate home loans, by adding these questions into the mix:

• Have you got a deposit equal to 20 per cent of the value of the property you want to buy?
• Will you have a greater capacity to pay larger repayments in a few years time?
• Would a loan with features like a redraw facility or offset account help you make additional repayments?

If you’re keen to compare home loan interest rates, our table of loans includes a range of loan options in Australia and you can easily see each loan’s interest rate and comparison rate. A mortgage broker or lender may also be able to help you find a home loan and answer your questions along the way.

Just remember, the loan with the lowest rate may not necessarily be the best option for your circumstances. The loan with the lowest rate may not even be the cheapest one overall once you take into account fees and the benefits of things like an offset account. It all depends on your personal circumstances and preferences.

The time you might have to wait to have your variable rate home loan approved can vary depending on a number of factors, including the type of loan you are applying for, your financial situation, the strength of your application, and the lender you’re applying with. Common waiting times can range from a few days to several weeks.

The home loan application process begins when you submit your application to your potential lender. During this stage, the lender will review your financial information and assess your ability to repay the loan.

Once your application has been approved, the next step is to sign the loan contract and provide any additional information or documents that may be required. This stage can also take anywhere from a few days to a few weeks, depending on the lender’s requirements and your availability.
It’s worth noting that, just because a certain home loan can be approved in a shorter time frame, doesn’t make it the best option for everyone. It’s important to do your research, and seek professional advice if you need to, to decide which loan might work for you and your circumstances.

Yes, a variable rate home loan can be refinanced, subject to the eligibility criteria of the new loan and lender.

Shopping around and comparing rates from different lenders can help to ensure that you’re getting a competitive interest rate. Refinancing to a lower interest rate or more suitable home loan can often result in significant savings over the life of the loan.
Before you decide to refinance, it is also important to consider the cost associated with the switch, which can include application fees, property valuation fees, and discharge fees. While these costs can sometimes be substantial, they may be outweighed by the savings you could achieve by securing a lower interest rate.

Another important factor to consider when refinancing a variable home loan rate is the type of loan that you’re looking to refinance into. For example, some borrowers may choose to refinance into a fixed rate loan, which offers stability and predictability in terms of monthly payments, although, many fixed rate loans can have higher interest rates than variable rate loans, which can result in higher monthly payments (depending on what happens with interest rates for the fixed period).

The short answer is yes. Your credit score is a measure of your creditworthiness, and it is impacted by your credit activity, both positively and negatively. Factors such as applications for credit, your history of making payments on time and the amount of debt you have, can all contribute to your credit score.

If you’re considering a variable rate home loan, and you want to protect your credit score, it's important to consider your financial situation and your ability to make payments, and to be prepared for changes in interest rates.

If you do have a bad credit score, you may want to consider working with a financial advisor or credit counsellor to help improve your credit score and find the right loan for your needs.

Before applying for a variable rate home loan, it's important to know the eligibility criteria that lenders use to assess your application. In Australia, depending on the lender, these can include:

• Employment and income. Lenders will want to see proof of your employment and income, including your salary and any other sources of income. They will also want to see a record of your employment history. If you’re self-employed they may ask for two years of tax returns instead.
• Credit history. Lenders will check your credit history, including your credit score, to determine your creditworthiness. They will generally want to see a record of on-time payments, low levels of debt and a good credit history.
• Loan amount. Lenders will also consider the loan amount you’re requesting, and your ability to repay the loan. The loan amount will be limited by your income and financial situation, among other factors.
• Loan purpose. Lenders will consider the purpose of the loan and the property you’re planning to purchase. They will assess whether the property is suitable security for the loan, and whether the loan amount is appropriate for the value of the property.
• Assets and liabilities. Lenders will assess your financial capacity, including your savings, assets, debts, and other liabilities.
• Security. Lenders will assess any security you can offer to support the loan, including the property you are purchasing, or other properties in your portfolio.

To apply for a variable rate home loan, there are several steps you can follow.

• Do your research. Start by comparing variable rate home loan rates from different lenders, including interest rates, fees, and features.
• Check your eligibility. Before you start your application, make sure you meet the eligibility criteria for a variable rate home loan.
• Gather your documents. To apply for a variable rate home loan, you will need to provide proof of income, identification, and other financial documents.
• Submit your application. Once you’ve gathered all your documents, you can submit your application either online or in person. During the application process, you may be asked to provide additional information or clarification on certain aspects of your financial situation.
• Wait for the assessment. The lender will assess your application, and conduct a credit check and a review of your financial situation. This process can take several days or weeks, depending on the lender.
• Receive an offer. If your application is approved, you will receive an offer from the lender. Make sure you read and understand the terms and conditions of the offer before accepting it.
• Activate the loan. Once you’ve accepted the offer, the lender will complete the final steps to finalise the loan. This may include a property valuation, title search, and a loan settlement.

We can’t tell you exactly how to choose a variable rate home loan. Instead, we’ve given you jargon-free facts to help you understand how this kind of loan actually works, and then we’ve provided simple, easy-to-follow questions for comparing a range of options, for these and other kinds of loans. This means you’ll have tools to help you pick a variable rate home loan, or any other kind of credit, that’s suitable for your needs.