What to be aware of when renovating an apartment
Whether you want to renovate it for profit or to live in, there are certain hurdles you ne...
27 Oct, 2022
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Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of February 21, 2023.
What is a variable home loan rate?
A variable rate home loan is a home loan where your interest rate will move up or down over the loan term. Interest rate fluctuations can happen at any time according to the lenders' wishes but they generally occur in line with changes to the official cash rate, which is set by the Reserve Bank of Australia (RBA). For example, if the official cash rate falls, it’s likely your lender will drop their home loan interest rates as well (and vice versa if the official cash rate rises).
Variable rate home loans can be more difficult to budget for than a fixed loan because you have to take into account potential rate rises or falls, which will impact your repayment amount.
Why choose a variable home loan rate?
In Australia, variable rate home loans are more popular than fixed rate home loans among borrowers.
Variable rate home loans can be more preferable to fixed rate home loans because they offer more flexibility. Variable rate home loans are generally more likely to offer appealing features like a redraw facility, offset account, or the ability to make extra repayments to help you pay off your loan sooner.
Variable rate home loans can be more preferable to fixed rate home loans if the official cash rate is falling as it means there’s a good chance your lender will also drop your home loan interest rate. If you were on a fixed interest home loan, you would miss out on these rate cuts during your fixed term. However, if you’re on a variable rate home loan and the official cash rate rises, it’s likely your lender will also then increase your home loan interest rate - whereas if you were on a fixed rate loan, your rate would stay the same.
Fixed rate VS. Variable home loan rates
Because interest rates on variable home loans fluctuate over the life of the loan, variable home loans can provide less certainty than fixed loans as you have to take into account interest rate rises or falls. However, fixed home loans aren’t without their downsides either, which include:
- Costly break fees which can amount to thousands of dollars if you choose to leave the loan before the fixed term is up
- You can miss out on interest rate cuts
- Many fixed home loans don’t offer redraw facilities or offset accounts
- High revert rates
Frequently Asked Questions
Yourmortgage.com.au helps to answer these frequently asked questions to assist home buyers on finding the best variable home loan rates in the market.
Refinancing from a variable home loan to a fixed loan is much simpler than refinancing from fixed to variable, which can attract hefty break costs and discharge fees.
Variable mortgage rates are subject to change at the lenders' discretion but generally fluctuate in line with any changes the Reserve Bank makes to the official cash rate.
You can pay off a variable home loan early by making extra or early repayments, which could potentially save you thousands in interest over the life of the loan. Unlike fixed home loans, you won’t be charged an early exit free for repaying your variable mortgage off early.
Not necessarily - variable rates can rise or fall depending on what’s happening with the official cash rate, so they may not always be higher than fixed rates. In fact, historically variable rate home loans have generally been lower than fixed, but this has changed a bit over the last few years with interest rates falling to historic lows. If fixed rates are lower than variable rates, it’s likely it means the lender expects rates to remain low for some period.
If interest rates are on the decline, it could make more sense to have a variable interest rate so you can benefit from rate drops. However, if interest rates are currently low but likely to rise in the near future, it could make more sense to lock in that lower rate with a fixed mortgage. Fixing your interest rate can be a bit of a gamble because you’re essentially taking a bet on whether your lender will increase or lower your rate.
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The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. Read about how Savings Media Group manages potential conflicts of interest, along with how we get paid.
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