Compare current variable home loan rates

What is a variable home loan?

A variable home loan is a home loan with an interest rate that can rise and fall over time, unlike a fixed rate home loan, where your rate is locked-in for 1 to 5 years.

Why do variable rates change? 

Variable home loan interest rates can fluctuate according to a lender’s desires. But economic factors, such as the Reserve Bank of Australia (RBA) cash rate in particular, play an important role in determining when lenders choose to increase or decrease their variable rates. 

This variability can play to a borrower's advantage when interest rates are low or falling. However, as many Australians realised after 13 cash rate hikes from May 2022 to November 2023, it can also be a disadvantage when interest rates are rising.

RBA cash rate 

The RBA cash rate is the price banks pay to borrow money from one another. So, a higher cash rate means higher borrowing costs for the bank, which they usually pass on to the consumer in the form of variable rate increases. 

In the graph below, you can see how a rising cash rate tends to push up variable interest rates in lockstep.

How variable rate changes affect your repayments 

Home loans are repaid in instalments, where a specific number of repayments will eventually lead to the loan being fully paid off by a certain date. 

But, a variable home loan rate means your repayments are unlikely to be consistent over the term of your home loan. 

As your variable rate rises, so too does the amount of interest you need to pay on your home loan. Conversely, if your rate drops, your mortgage repayments will drop too.

Will variable home loan rates go down in 2025? 

Unfortunately, Mozo doesn’t have a crystal ball to tell the future with. But, what we can do is look at what expert economists have forecast. 

With inflation cooling off in Australia, the Big Four banks predict the RBA will cut the cash rate in 2025, likely resulting in lower variable home loan rates for Aussie borrowers. However, consensus on the timing of the first cut is split between February and May 2025.

What features do variable home loans have?

Variable home loans typically come with more features than their fixed-rate counterparts. These features can include:

• Offset accounts
• Free extra repayments
• Redraw facilities
• Flexible repayment frequencies.

What types of variable home loans are available in Australia?

No matter if you’re an investor or an owner-occupier, variable home loans come in all shapes and sizes. 

Variable rates are available on: 

• Owner occupied home loans
• Investment home loans
• Principal and interest home loans
• Interest-only home loans 
• Offset home loans 
• Packaged home loans. 

To get your search started, compare home loans now. 

Pros and cons of variable rate home loans

As mentioned earlier, variable interest rates provide an advantage when home loan rates are low, but can increase your repayments when interest rates are rising. But those aren’t the only pros and cons. 

Pros 

• Flexible repayments: Variable rates can help you to pay off your loan faster by not limiting extra repayments and may offer offset accounts and redraw facilities to help you reduce the interest you’re charged, while maintaining access to surplus funds if you need them.
• No early break costs: Unlike a fixed rate, variable rates allow you to refinance your home loan at any time, without having to pay an expensive early break cost. This means you may be able to switch to a lower home loan rate and save money. 
• Pay less when rates fall: When the cash rate falls, variable home loan rates tend to fall too. This can mean the interest portion of your mortgage repayments decreases, leaving you with more money in the bank. 

Cons

• Pay more when rates rise: When the cash rate rises, variable rates typically increase. A higher variable rate means you’ll pay more interest, leading to larger repayments. 
• Inconsistent repayments: Due to the variability of this type of interest rate, your repayments are likely to be inconsistent over time. This can make it a bit harder to budget over the long term, especially if rates dramatically change in a short span of time.

How to get the lowest variable home loan rates

The lowest variable home loan rates are usually reserved for the most financially stable borrowers, meaning you’ve got a stable income, good credit history, strong savings, and aren’t an irresponsible spender. 

In short, they want you to borrow money from them, but only if it looks like you’re able to pay it back. 

Here are some tips to help you find the cheapest home loans: 

• Compare variable home loans: Don’t just go for the first home loan you find. Take the time to use comparison sites that have comprehensive product data, like Mozo, to explore your options. Make sure you consider the comparison rate, which gives you an idea of the cost of each product including its fees.  
• Opt for smaller lenders vs Big Four: Big Four banks tend to have higher interest rates than leading smaller lenders, due to higher business costs. Keep an eye out for digital lenders, credit unions, and challenger banks that offer lower interest rates on average than the big players. 
• Save a minimum 20% deposit: A 20% deposit is the standard in Australia, and while you can get a home loan with a low deposit, the larger your downpayment is, the better interest rates you have access to. This is because lenders see a low loan-to-value ratio (LVR) as a less risky investment for them.