What is a variable rate home loan?

Variable home loan rates give you flexibility and extra features to save you money. Your variable interest rate will move up and down over time, loosely in line with the official interest rates set by the Reserve Bank of Australia (RBA).

There are two types of variable rate home loans - basic variable and standard variable. Your Loan Market mortgage broker will explain the features so you can balance interest rate movements and minimise your loan costs.

How do variable home loans work?

Your variable rate is loosely based on where the RBA official sets the cash rate. The cash rate is used as a lever to control growth and spending in the economy. Generally, when rates are lowered, the RBA is enticing consumers to spend more and when its raised the RBA is aiming to slow down spending.
Banks and lenders review their interest rates each month and usually move when the RBA moves the cash rate. However not all lenders move their interest rates the same amount or in line with the RBA. A Loan Market mortgage broker can tell you which lenders make the most competitive moves when the RBA adjusts the cash rate.

Standard variable home loans

Standard variable home loans offer borrowers flexibility with a range of optional features - such as redraw, extra repayments or access to a line of credit – in exchange for a slightly higher interest rate than a basic variable home loan rate. These features can help you to reduce the overall term and cost of your loan, making standard variable home loan rates the most popular loan in Australia.

Basic variable home loans

Basic variable home loans offer less features and flexibility, but have lower repayments. The basic variable rate can be lower than the standard variable rate, sometimes as much as 0.5% per annum. Some basic variable home loan rate products have a little flexibility but you might be able to add popular features on a fee-for-feature basis, depending on your lender and your loan.

Discounted Variable Rates

Many banks and lenders will offer discounts on their standard variable rates. The amount the discount depends on a number of factors including;
  • loan size
  • loan-to-value ratio
  • income

Our mortgage brokers work with 30 different lenders and know who is offering the biggest discounts for certain types of borrowers.

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