Variable Rate Home Loans in Australia: Everything You Need to Know

A variable rate home loan is a type of mortgage where the interest rate can change over time. The interest rate is usually linked to an underlying index, such as the Reserve Bank of Australia’s cash rate.

When the cash rate goes up, so does the interest rate on your variable rate home loan. And when the cash rate goes down, so does the interest rate on your variable rate home loan.

Variable rate home loans are a popular option for Australian borrowers because they offer the potential for lower interest rates than fixed rate home loans. However, it’s important to remember that the interest rate on your variable rate home loan can go up as well as down. This means that your monthly repayments could also go up.

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How Do Variable Interest Rates Work?

Variable interest rates are tied to an underlying index, such as the Reserve Bank of Australia’s cash rate. When the cash rate goes up, so does the interest rate on your variable rate home loan. And when the cash rate goes down, so does the interest rate on your variable rate home loan.

The amount by which the interest rate on your variable rate home loan changes is called the margin. The margin is set by the lender and is usually between 1% and 2%.

For example, if the cash rate is 4% and the margin is 1%, then the interest rate on your variable rate home loan would be 5%.

Best Variable Rate Home Loan

In addition to the aforementioned options, there are several other variable rate home loans in Australia that you may consider:

  1. HSBC Variable Rate Home Loan: HSBC offers a competitive variable rate home loan with flexible features such as redraw facilities and the option to split your loan between fixed and variable rates.
  2. Macquarie Bank Basic Home Loan: Macquarie Bank provides a variable rate home loan with a low interest rate and minimal fees. It offers features like extra repayments and a redraw facility to help you save on interest.
  3. St. George Basic Home Loan: St. George offers a basic variable rate home loan with a low interest rate and minimal fees. It provides flexible repayment options and the ability to make additional repayments to pay off your loan faster.
  4. Bankwest Complete Variable Home Loan: Bankwest offers a variable rate home loan with a range of features such as an offset account, unlimited additional repayments, and a redraw facility. It also provides a competitive interest rate.

What Rates Do The Big Four Banks In Australia Offer?

Here are the current variable home loan rates offered by the big four banks in Australia:

  • ANZ: ANZ Bank offers a range of variable rate home loans, and the interest rates can vary depending on the specific loan product and individual circumstances. As of May 2023, ANZ’s basic variable interest rate is 5.79% per annum. However, it’s important to check with ANZ directly for the latest rates.
  • Commonwealth Bank: Commonwealth Bank, also known as CommBank, offers variable rate home loans with different features and interest rates. As of May 2023, the Commonwealth Bank’s variable home loan interest rate is 5.89% per annum. It’s advisable to confirm the current rates with Commonwealth Bank.
  • Westpac: Westpac provides a range of variable rate home loan options, each with its own interest rate and features. The variable home loan interest rate for Westpac as of May 2023 is 5.49% per annum. However, it’s recommended to check with Westpac directly for the most accurate and up-to-date rates.
  • NAB: National Australia Bank (NAB) offers various variable rate home loans to cater to different borrower needs. NAB’s variable home loan interest rate as of May 2023 is 5.99% per annum. It’s important to verify the current rates with NAB, as they may have changed.

The Average Variable Home Loan Rate in Australia

The average variable home loan rate in Australia is currently 5.79% p.a. However, rates can vary depending on the lender, the amount of money you want to borrow, and your credit score.

Fixed rate vs variable rate mortgage

The main difference between a fixed rate mortgage and a variable rate mortgage is that the interest rate on a fixed rate mortgage stays the same for the entire term of the loan. The interest rate on a variable rate mortgage can change over time.

Fixed rate mortgages offer the peace of mind of knowing exactly how much your monthly repayments will be for the entire term of the loan. However, they can be more expensive than variable rate mortgages.

Variable rate mortgages offer the potential for lower interest rates than fixed rate mortgages. However, your monthly repayments could go up if the interest rate on your loan goes up.

Variable Rate Examples

Variable interest rates are linked to a reference rate, typically the central bank’s cash rate, and can fluctuate over time. Here are a few more examples to illustrate how variable interest rates work.

Example 1

Let’s say you have a variable rate home loan with an initial interest rate of 4% and a margin of 1%. If the cash rate set by the central bank is 4%, your total interest rate would be 5% (4% cash rate + 1% margin).

Example 2

If the central bank raises the cash rate to 5%, your variable interest rate will also increase. With the 1% margin, your new interest rate would be 6% (5% cash rate + 1% margin). As a result, your loan repayments would increase, assuming all other factors remain the same.

Example 3

In the event that the central bank decides to lower the cash rate to 3%, your variable interest rate will decrease accordingly. With the 1% margin, your new interest rate would be 4% (3% cash rate + 1% margin). This reduction in interest rate could result in lower monthly repayments, providing potential savings on your home loan.

It’s important to note that the actual interest rates offered by lenders may differ from these examples, as they can vary based on market conditions, the individual lender’s pricing, and specific loan terms. Additionally, the margin applied to the cash rate can also vary among lenders.

When considering a variable rate home loan, it’s crucial to assess your financial situation, risk tolerance, and ability to handle potential interest rate fluctuations. It’s wise to stay informed about market trends and consult with your lender or a financial advisor to make an informed decision.

Apply for a Variable Rate Home Loan today!

Variable rate home loans can be a good option for borrowers who are willing to accept the risk of interest rate fluctuations. However, it’s important to make sure that you can afford your monthly repayments even if the interest rate goes up.

If you’re considering applying for a variable rate home loan, we encourage you to speak with our experienced mortgage broker. We are a leading Australian mortgage service provider for Australian expats and foreign nationals globally. We can assess your situation and help you find the right lenders to finance your mortgage.

Speak with one of our expat mortgage brokers today!

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

Frequently asked questions

Unlike a fixed rate home loan, where the interest rate remains the same for a specified period, a variable rate home loan can change periodically. Variable rate loans offer flexibility, as they often allow for extra repayments and may come with features like redraw facilities.

However, they can also be subject to interest rate fluctuations, which means your repayments may increase or decrease over time.

The interest rate on a variable rate home loan can change due to various factors, including changes in the central bank’s cash rate, economic conditions, inflation, lender policies, and market competition. Lenders may also adjust their rates independently to manage their lending portfolios.

The frequency of interest rate changes can vary depending on the loan and the lender’s policies. It is important to review the loan terms and conditions to understand how often the interest rate can change. Some lenders may adjust rates monthly, while others may do so quarterly or even less frequently.

Many variable rate home loans allow borrowers to make extra repayments without incurring penalties. This can help you reduce the principal amount and potentially save on interest over the life of the loan.

However, it’s advisable to check with your lender as some loans may have limitations on the amount or frequency of extra repayments.

In some cases, you may have the option to switch from a variable rate to a fixed rate during the loan term. This is known as “splitting” your loan or opting for a “split loan.” It allows you to have a portion of your loan on a fixed rate and the remaining portion on a variable rate, providing a balance between stability and flexibility.

However, there may be fees or conditions associated with switching loan types, so it’s important to discuss this with your lender.

The choice between a variable rate and fixed rate home loan depends on your personal circumstances and preferences. Variable rate loans offer flexibility and the potential for lower rates in a declining interest rate environment. Fixed rate loans provide stability and predictable repayments during the fixed term.

Consider factors such as your financial goals, risk tolerance, future interest rate expectations, and the features and benefits offered by each loan type before making a decision.

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