Loan Rates

Variable home loan rates, what are the pros and cons?

Luke Harris
Jun 9, 2021
Yard Financial Pty Ltd | ACN 623 357 513 | Australian Credit Licence 509481

Table of Contents

Looking for a home loan comes with many new terms and concepts, one of which is variable rate home loans. You may find variable rate, variable interest rate or standard variable rate, or similar terms used during your research on home loans, but what does it actually mean?

Understanding what a variable rate home loan is, the pros and cons, how a variable home loan rate is different to a fixed rate, and how to look for the best variable home loan rate will help you with your home loan research.

What are variable home loan rates?

Variable home loan rates are interest rates that may change with the lending market (e.g. when the official RBA cash rate changes) or when lenders make a business decision to change the rate. This means that your repayments can increase or decrease throughout your loan term, depending on what is happening with interest rates or the lending market.

Pros of getting a variable rate home loan

  • You have the flexibility to refinance or pay out your home loan at any time without incurring fees.
  • You can make unlimited extra repayments without fees and then access these repayments with a redraw facility.
  • You can access additional features like an offset account that will help you lower the interest you pay.
  • If interest rates decrease, you’ll save money on interest as your rate will decrease.

Cons of getting a variable rate home loan

  • Your repayment can increase or decrease based on any change in the market or your lenders business decisions.
  • It might be more difficult to plan out a long term budget because of this possibility of change.

How are variable home loan rates different to fixed home loan rates?

The most significant difference between variable home loan rates and fixed home loan rates is the difference between flexibility and certainty. With a variable rate home loan, you have the flexibility to refinance or pay out your home loan at any time. However, with a fixed-rate home loan, you’d have to pay break costs if you refinanced or paid out your mortgage during the fixed period. 

Also, if you want to make additional repayments with a variable rate home loan, you’ll likely have unlimited extra repayments. A fixed-rate home loan will often put a cap on how much additional funds you can add to your home loan.

What’s a standard variable rate, and how is it different from a variable home loan rate?

When shopping for a variable home loan rate, you may come across the term standard variable rate (SVR) and wonder what it is. The SVR is a baseline or benchmark rate the lender will use to calculate the interest rates they offer customers. 

Some lenders will offer this rate as a home loan that includes all the benefits and features you can find with a variable rate home loan. Other lenders may use the SVR as a benchmark to apply discounts to calculate the range of variable rate home loans offered to customers.

How to find the best variable home loan rate

Finding the best variable home loan rate in the market means doing some research and not getting swayed by the marketing. When you’re looking for the best variable home loan rates, be sure to double-check that the rate isn’t an introductory or honeymoon rate which will increase after the introductory period.

You also need to be aware of any additional features that come with a variable rate home loan. There could be an account keeping fee for that offset account? Once you’ve done the research to get a proper understanding of what you’re looking for, check out Yard’s variable rate home loans here.

General Manager

Want to learn more?