Variable Home Loans

The Variable Home Loan rate is the most popular home loan type in Australia. An interest (and comparison) rate is set for a particular product and will vary depending upon cash rate changes as dictated by the Reserve Bank of Australia. The variable rate set by a bank doesn’t necessarily move proportionally to official cash rate changes, so the bank’s variable rate is typically called the Bank Standard Variable Rate.

The popularity of the Standard Variable Rate is based on a number of product attributes:

Availability. Most banks have and promote their standard variable product.
Features. Detailed below, the standard variable rate offers a range of features, such as the 100% offset account, allowing you to reduce interest and pay off your home loan sooner.
Portability. A variable rate home usually provides an easy mechanism to refinance into another product with the same lender, or a product with a competing lender, in order to take ownership of a mortgage that minimises your obligations and makes it easier to pay off your home loan sooner.
Variable Rates. As per the name, as a rate decreases, your rate will also likely decrease (should a bank pass on the saving). However, unlike a fixed rate home loan if rates increase, so too will your interest rate.

Variable Home Loan Product Features

The reason the standard variable rate is the most popular in Australia is because of the flexibility and features typically offered by way of the product. We have hundreds of pages of available home loans published on the site that’ll guide you through various products, and each page typically lists the qualifying LVR and product information. Some of those advantages include the following:

Offset Account. The Offset Account is a type of savings account linked to your home loan. The money in that account offsets account your home loan. For example, if you have a $500,000 loan and $100,000 in an offset account, you only pay interest on the $400,000 balance. This type of facility allows you pay your home loan much sooner.
Interest Only Option. You can minimise your monthly obligations by paying off the interest only component for a period of time. Often suitable for investors, it’s one of the features you should discuss with us.
Flexible Loan Term. The variable home loan rate is very flexible with most lenders offering up to 30 year terms. Some specialty employment, such as firefighter and police officers, may qualify for up to 40-year terms.
Split Home Loans. Variable products usually offer the option of splitting your home loan by borrowing a certain amount with a fixed rate, and the remainder with a variable rate. This offers a little security on the fixed component, potential savings with the variable component, while you enjoy the features of both types.
Redraw Facility. A Redraw facility allows you to withdraw additional funds you have deposited into your home loan.
Flexible Repayments. Variable home loans almost always allow very flexible payment arrangements, such as unlimited additional payments. This allows you to save interest payments and pay off the home loan much sooner.

The variable products tend to offer more flexible features than the Fixed Home Loan.

Types of Variable Rate Home Loans

Lenders have various categories of variable home loans. They include but are not limited to the following:

Basic Variable Rate Home Loans. A basic variable rate is one that compromises on features for lower rate. So, while the rate may be lower, you may not have access to offset accounts, redraw facilities, or other features. A Basic Variable Rate may not attract any ongoing or initial application fees.
Package Home loans:. The Package Home Loan is a loan that provides various discounts on rates, and possibly adds other features, based on bundling your savings accounts (and possibly credit facilities) from other lenders. It may attract a fee.
Introductory Rate Home Loans. Introductory Variable Rates are often promoted by lenders with a discounted fee for the first 12 (or longer) months of the loan. Often called a “Honeymoon Rate” it is often suitable for First Home Buyers. Use the discount wisely and continue to pay a higher amount!
Low Doc Variable Rate Loans. A low doc home loan is an alternative solution for those who can’t provide sufficient documents to prove their income – usually those that are self-employed. In some cases, LMI as low as 60% LVR may be payable for these types of loans.
Basic Credit Variable Home Loans. Bad credit loans are designed for those that may have a bad credit history or unpaid debts. Bad credit loans are assessed slightly differently to standard loans and usually incur a higher interest rate.

Other types of loans may apply. Once you have demonstrated your ability to service a loan you may likely later qualify for another type of loan with lower rates.

Variable Loan Rates and Fees

You are generally required to cover the costs associated with your loan application. We’ve listed the most common fees below but most fees applicable to each product is listed in our bank product pages.

Application Fees. Most lenders do not charge a fee for a home loan application but they are payable in certain cases.
Lenders Mortgage Insurance (LMI). If you’re borrowing more than 80% of the value of a property a lender may require you to pay a once-off insurance premium, called ‘Lenders Mortgage Insurance‘. In some cases this is waived (such as the medical industry), and in other cases the premium is payable with a higher LVR, such as police officers.
Valuation Fees. Your property will likely require a home valuation, and you are required to pay for this service. In many cases this requirement is waived.
Conveyancer Fee. Conveyancing is the legal term applied to the processing involved in transferring the ownership of a property. The task is usually performed by a licensed conveyancer or solicitor. We have a list of recommended Conveyancers to ensure a seamless transition.
Discharge Fees. As a means of encouraging competition the Government has banned the ‘discharge fee’ as previously applied, but they may still charge anywhere between $100 and $500 for legal fees.
Redraw Fees. In some cases your bank may impose a fee on various redraw facilities.

Disadvantages of a Variable Rate Home Loan

Variable Rate Loans aren’t without their disadvantages. Some of those include:

Unknown Rate Movements. While you may borrow at a lower rate, over time it may increase by multiple percentage points, potentially adding a significant burden to your repayment obligations. Use our advanced repayment calculator to assess what sort of impact an interest rate rise will have on your repayments.
Difficult to budget. Unlike Fixed Rate Home Loans, it’s difficult for you to play for your everyday budgeting since rates can potentially increase every month.