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Variable-rate home loans
Written by
Kervin Mathew
Edited by
Andrew Kemp
Reviewed by
Sam HymanWe’ve partnered with Aussie, who’ve helped 1.5 million Australians and counting
iSelect Mortgages Pty Ltd is a credit representative (Credit Representative 400540) of Lendi Group Distribution Pty Ltd (Australian Credit Licence 246786). iSelect Mortgages Pty Ltd receives a commission from Lendi Group Distribution Pty Ltd, the licensee for each new customer account created and for each home loan submitted through this service. Learn more.
What is a variable-rate home loan?
A variable-rate home loan is a mortgage with an interest rate your lender can change whenever they decide it’s necessary. Because of this, your variable home loan rates (and hence your minimum monthly repayments) can go up or down because of broader market changes – such as when the Reserve Bank of Australia (RBA) hikes the official cash rate.
Why choose a variable-rate home loan?
Variable-rate home loans come with various features and flexibility that often aren’t found in fixed-rate home loans. They usually allow you to make unlimited extra repayments and offer access to offset accounts, not to mention allowing you to enjoy the benefits of interest rate drops without facing significant break costs. If the cash rate falls, then a variable-rate home loan will usually also fall, unlike a fixed-rate loan, which isn’t affected by changes to the cash rate.
What are the current variable interest rates in Australia?
Australia’s variable interest rates on new and existing loans for owner-occupiers were sitting around 6% as of mid-2026, according to the RBA. It’s worth keeping in mind, though, that variable rates depend on a few things – like whether the property is owner-occupied or an investment, if you’re making interest-only or principal and interest repayments and whether it’s a new or existing loan.
To understand how the official cash rate (OCR) and interest rates work together, it helps to know that banks themselves need to borrow from other banks, and the OCR is the interest rate they pay. Banks tend to treat the OCR as a benchmark, but they can also choose to ignore it.
It’s also key to understand that the OCR can end up influencing the home loan interest rates offered to the end consumer – you.
What are the types of variable-rate home loans?
Variable-rate home loan types are based on features (basic, standard and package) and repayment structure (interest-only or principal and interest). Some lenders also offer introductory discount variable-rate loans that aim to attract new borrowers. And of course, you could also split your loan into part-fixed and part-variable.
Basic variable-rate home loan
The basic variable-rate home loan has a low rate and fewer features. It’s great for borrowers who want to minimise their interest payments and take advantage of low (if not zero) application or administration fees.
Many lenders also offer features such as flexible repayment frequency, unlimited extra repayments and free redraw (albeit potentially with a minimum withdrawal amount). However, basic loan types usually don’t come with other features often found in standard or package variable-rate loans.
Package home loan
A package home loan is a home loan accompanied by other banking products and perks such as savings and everyday accounts, credit cards, waived fees and discounts. You could look at it as a way to consolidate your banking costs instead of paying separately for each product.
So, if variable-rate home loans come with bells and whistles, you could say this one is the entire orchestra.
On the downside, packaged home loans might not come with the best home loan interest rates, and you might end up paying for products you don’t need or use. Additionally, the convenience of a package loan may potentially put you off refinancing into a home loan with a lower interest rate.
Standard variable-rate home loan
A standard variable-rate home loan offers greater flexibility, and its main difference from a basic variable-rate loan is that it often includes premium features such as multiple offsets and credit card bundles. Because of these additional features, standard variable loans may charge higher interest rates or higher fees.
Introductory discount home loan
In a bid to attract borrowers, lenders might offer ‘introductory’ home loans with a low interest rate for up to around 2 years. First home buyers might take a fancy to this type of loan to help them ease into mortgage repayments, which is perhaps why they’re sometimes referred to as honeymoon loans.
When the honeymoon ends, though, you’ll likely face a higher variable rate. With that in mind, it can help to plan for when that eventually happens!
Helpful tip
Before you decide on a variable home loan, do a stress test: use a mortgage calculator to increase the current average interest rate by a percentage point or two. Then compare the projected repayment amounts against your budget. This can indicate whether you’re in a decent position to borrow. If you’re already battling a high-interest home loan, you could try refinancing to find one with a lower interest rate.
Sam Hyman
General Manager – National Sales, Aussie
What features can you get with a variable-rate home loan?
Variable-rate home loans offer features such as offset accounts, redraw facilities, flexible repayment frequencies and unlimited extra repayments. These features allow you to save on interest costs, pay down your mortgage sooner and refinance without the hefty break fees you often get with fixed-interest rate loans.
Offset account
An offset account is a separate savings or everyday transaction account that’s linked to your home loan. It helps reduce the interest you pay on a home loan because the balance of your offset account is deducted from your loan principal during interest calculations.
For instance, if you have $20,000 stowed away in an offset account and your loan balance is $100,000, you only pay interest on $80,000.
Redraw facility
A redraw facility lets you make extra payments towards your home loan – and then withdraw them later if you need to, say for emergencies or significant spending like renovations.
Payment flexibility
With variable-rate home loans, you can make additional repayments on top of your minimum – without penalty. This feature helps trim down the balance on your loan so you can pay off your mortgage sooner (read: shorter loan term and fewer interest payments). And in most cases, you’ll be able to choose the frequency of your repayments, too – whether weekly, fortnightly or monthly.
And if you decide to pay off the loan completely or refinance with another lender, variable-rate home loans don’t charge any break fees, unlike with fixed-rate mortgages.
How much will a rate increase affect my repayments?
A rate increase impacts your repayments by increasing the interest charges on the balance of your loan. For instance, a 0.5% increase on a $500,000 variable-rate home loan over a 25-year term could increase your monthly repayments by $154.
Just have a look at the table.
| Interest rate | 6.00% per annum | 6.5% per annum |
|---|---|---|
| Loan amount | $500,000.00 | $500,000.00 |
| Loan term | 25 years | 25 years |
| Monthly repayments | $3,222.00 | $3,377.00 |
Note: These figures reflect an indicative scenario, based on iSelect’s mortgage calculator and rounded where appropriate. Actual costs may vary depending on the borrower’s personal situation.
When the incomparable Sinatra sang, ‘You’re riding high in April, shot down in May’, his inspiration may as well have been a variable-rate home loan. That’s because:
- Interest rate changes are unpredictable. There’s no way to know when interest rates will rise or fall.
- The RBA’s official cash rate (OCR) has ranged from as low as 0.10% in 2020 to 4.35% in mid-2026.
Keep an eye out for the media release that’s issued at 2.30 pm (Sydney time) after each RBA board meeting. It will indicate any changes in the OCR taking effect the next day.
Variable-rate home loans explained
Variable-rate home loans have interest rates that change along with fluctuating market conditions. And while this means your repayments go up when rates rise (or go down when rates take a nosedive), this type of home loan offers flexibility and features that can help you pay your mortgage sooner.
Learn all about variable-rate home loans, including the benefits, what to look for and how iSelect can give you a helping hand.
Variable-rate home loans vs fixed-rate home loans
Fixed-rate home loans aren’t as flexible as variable-rate loans and generally have hefty break fees if you want to switch to a different lender or pay off the entirety of the mortgage early. Variable-rate home loans could mean your interest rates – and thus, your repayments – change when market rates fluctuate, but they offer flexibility and features that can help you pay down your mortgage sooner. Fixed-rate home loans have locked-in interest rates for a certain period (typically one to 5 years) so they offer certainty and protection from interest rate hikes.
Variable-rate home loans
With a variable-rate home loan, you’ll find that you have more flexibility, but that comes at a cost. Before you decide to go with one, it’s important to weigh up the benefits and downsides.
Pros
- Flexibility in repayment frequency and amount
- Refinance, switch lenders or pay off the mortgage early without penalty
- Potential rate decreases leading to lower repayments
Cons
- Potential rate rises leading to increased repayments
- Less certainty in budgeting
Fixed-rate home loans
Fixed home loans lock you into a set interest rate for a set time, giving you certainty about what you’ll pay for in that duration. But that means you’re also stuck with what you have if the market shifts and rates fall.
Pros
- A fixed rate means certainty around repayments
- Protection from interest rate rises
- Confidence around budgeting and financial planning
Cons
- Missing out on potential rate drops
- Penalties for early repayment or refinancing
- Fewer features and limited flexibility
How do I know if interest rates are going down?
To know if interest rates are going down, look out for the RBA’s cash rate announcements, which usually dictate the interest rates set by banks and lenders, and monitor any downward trend in macroeconomic factors – such as unemployment rates and inflation data (these are usually released by the Australian Bureau of Statistics). You can also get an indication that the market expects interest rates to fall when major lenders and retail banks lower their fixed-rate home loans.
What factors can affect the interest rates on variable-rate home loans?
Variable-rate home loans are influenced by the official cash rate set by the RBA, lenders’ funding costs, the type of repayment and market competition. Lenders also look at individual rates based on the borrower’s financial profile, deposit and their loan-to-value ratio (LVR).
Official cash rate (OCR)
Interest rates offered by bankers and lenders tend to reflect movements in the OCR that the RBA sets. When the cash rate rises or falls, lenders typically follow suit and adjust their variable rates accordingly.
Lender funding costs
Banks and lenders borrow money from the wholesale market or rely on borrowers’ deposits to fund various mortgages. So, lenders pass on borrowing costs to variable-rate borrowers, flowing through to their lending rates.
Loan repayment type
Interest-only repayments often come with higher interest rates than principal-and-interest home loan.
Loan-to-value ratio (LVR)
Borrowers with a high LVR (say, above 80%) are often viewed as higher risk, so they’re charged with higher interest rates (if not end up paying lenders mortgage insurance or LMI). Remember, your LVR is the percentage of a property’s value that you borrow from the lender.
Frequently asked questions
How often do variable interest rates change?
There’s no set schedule for variable interest rate changes, as these depend on changing economic conditions. Market factors (such as the unemployment rate and inflation) and RBA cash rate announcements are good indicators that a variable rate change may be imminent. In saying that, individual lenders can change their variable rates at any time, especially with respect to wholesale funding costs and market competition.
Would a split interest rate be better?
A split home loan interest rate is better for those that need a mix of features found in both variable and fixed-rate loans. When you split your home loan, you benefit from knowing what your monthly repayments will be on the fixed portion, and if interest rates drop, you could also take advantage of the rates going down on the variable portion. If rates increase, the fixed portion of your home loan will remain unaffected.
How do I compare my options to find a suitable loan?
You can compare options to find a loan that works for you by using comparison sites such as iSelect.
There’s an ocean of options out there and navigating every single one of them can quickly become overwhelming. You can still sift through the deluge of deals by considering your individual preferences and then seeking out the products that match them. But while paddling your own canoe is admirable, you can also use iSelect to compare home loans if you’d like a little push upstream.
As a start, you could look out for:
- interest rates: what they mean for your repayment amounts and how they compare with other lenders
- loan features: how they’d benefit you and whether they’d make a tangible difference
- loan term: how long you’re willing to pay down your debt and whether that aligns with your financial plans
- fees: what you’re paying for, how much you’re paying and whether you see the value
- flexibility: available options, such as being able to pause repayments, and whether you think you’ll need them.
Get started on comparing home loans today!
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iSelect is the trading name of iSelect Mortgages Pty Ltd (ABN 86 148 217 181). iSelect Mortgages Pty Ltd is a credit representative (Credit Representative 400540) of Lendi Group Distribution Pty Ltd (Australian Credit Licence 246786). iSelect provides a referral to Lendi Group Pty Ltd, a Credit Representative of Lendi Group Distribution Pty Ltd (Australian Credit License 246786). iSelect Mortgages Pty Ltd receives a commission from Lendi Group Distribution Pty Ltd, the licensee for each new customer account created and for each home loan submitted through this service.