What are the best variable rate home loans?
Looking for a flexible home loan with useful features? You may be considering a variable rate home loan. There’s no one ‘best’ variable rate home loan, as the best one for you will depend on your needs and budget.
If you’re comparing variable rate home loans, Canstar’s Home Loan Awards recognise the financial institutions offering outstanding value to borrowers. Our most recent award winners were:
2026 Outstanding Value Award - Home Lender: Australian Mutual Bank, BankVic, Hume Bank, Pacific Mortgage Group (PMG), People’s Choice (now part of People’s First Bank), Unity Bank, and Up.
2026 Outstanding Value Award - Variable Home Lender: Freedom Lend, Homestar Finance, Loans.com.au, Mortgage House, Pacific Mortgage Group (PMG), People’s Choice (now part of People’s First Bank), Qudos Bank, Queensland Country Bank, Unity Bank, Unloan, and Up.
How to find the best variable rate home loans
When using the comparison table above to find the a good home loan fit for you, you should consider a loan’s:
- Interest rate, which determines how much interest you pay each repayment cycle, expressed as a percentage per year. Variable interest rates can change over time, commonly due to economic factors like the RBA cash rate changing.
- Comparison rate, which takes into account both the interest rate and certain initial and ongoing fees. This can give you a better idea of the true cost of a loan each year.
- Fees like loan application and establishment, valuation, legal, settlement, and ongoing fees.
- Features that can help you pay less in interest, like an offset account or redraw facility, or to pay down your loan faster. Also consider fees that may come with these features.
- Whether the provider is an Award Winner, as Award-winning loan products have been reviewed and rated by our expert researchers and found to offer customers outstanding value on both price and features.
What is a variable rate home loan?
A variable rate home loan is a home loan with an interest rate that can change, as opposed to a fixed rate home loan, where the rate charged is locked in for a set period of time.
Variable rates have historically been more popular with Australian borrowers, and tend to offer more features and flexibility than their fixed rate counterparts. For instance, you can generally refinance a variable rate home loan easily and make unlimited extra repayments.
One drawback of variable rates is that the rate a borrower is charged can rise. While lenders have to give borrowers notice of any change to their interest rate, the nature of variable rates can mean they're harder to budget for over the long term. On the other hand, variable rates can also fall, potentially leaving borrowers with more money in their pockets.
What types of variable rate home loans are available in Australia?
Variable rate home loans are commonly split into three different types:
Basic variable rate home loan
Basic variable rate home loans offer little in the way of features, but typically make up for it by providing lower interest rates and fees.
Packaged variable rate home loan
These variable rate home loans come with plenty of bells and whistles, as far as features are concerned. Depending on the loan, you may be able to access offset accounts, redraw facilities, or even a linked transaction account or credit card product at a reduced or waived fee. Generally, these loans have higher interest rates compared to basic variable rate ones, and they typically come with an annual fee – often a few hundred dollars per year.
Standard variable rate home loan
This is a common type of variable rate, and is often used by lenders to price their other loan products. When lenders offer a discounted interest rate for an initial period or a borrower rolls off a fixed rate, their loan will sometimes ‘revert’ to this standard rate. It’s important to compare any revert rate against others on the market, as lenders’ standard variable rates are commonly among the highest in their line up.
What about split-rate home loans?
Split-rate home loans allow you to take advantage of both fixed and variable rates. Generally a portion of your loan balance will be charged a fixed rate of interest, while the rest remains on a variable rate. This can give you greater certainty over how much your repayments will be each cycle, while also providing access to attractive features that can come with variable rate home loans.
What features do a variable rate home loan come with?
Variable rate home loans tend to come with more features than fixed rate loans. Some of potential features include:
Offset accounts
An offset account functions in much the same way as a standard bank account, but it’s linked to your home loan. The money sitting in your offset account actively reduces your remaining loan balance for interest calculation purposes. For example, if you had a remaining loan balance of $300,000 and $50,000 sitting in your offset account, you’d only pay interest on $250,000. You can also access the funds in your offset account whenever you need them, much like a regular bank account.
While most offset accounts are 100% offsets, meaning the full amount in your account is used for interest calculation purposes, this may not always be the case. It’s important to confirm with any potential lender around how their offset accounts function.
Redraw facilities
A redraw facility allows you to access or ‘redraw’ additional repayments you’ve made towards your home loan. It’s different from an offset account as it doesn’t function like an everyday bank account and won’t come with a debit card attached. So, while the funds may be available, they cannot be accessed as readily for everyday transactions. When you can access the facility, how much you can withdraw, and if any fees apply will depend on your lender’s terms and conditions, so it’s important to check these before applying for the loan.
The ability to make extra repayments
Variable rate home loans typically come with the ability to make additional repayments on top of your standard repayments, without incurring fees. Making extra repayments can lower the balance of your mortgage, reducing the amount of interest you pay each repayment cycle, and potentially help you pay off your home loan quicker.
Packaged extras
Depending on the lender, variable rate home loans can come as packages, with extras such as credit cards and certain fee waivers included. If you’re interested in these extras, a package can mean paying just one fee instead of multiple. If you sign up for a package, your lender may also offer you a discount on your variable rate. But before signing up, it’s worth comparing your options to see if you could find a better deal on packaged products separately.
When should you choose a variable interest rate on your home loan?
While it’s a personal decision, you may consider a variable rate home loans when:
- The cash rate and interest rates more broadly are high and don’t look likely to increase any further. If you’re on a variable rate you may be able to take advantage of future cash rate cuts.
- Variable rates are more competitive than fixed rates, though this is often the case if rates are expected to rise in the not-too-distant future.
- You want greater flexibility in how you pay off your loan.
- You think you’re likely to refinance your mortgage or sell your property in the near-enough future, as fixed rate home loans often charge break fees in these instances.
- You want to make use of extra features that come with variable rate loans.
Are variable rates cheaper than fixed rates?
The difference between fixed and variable rates can change over time. Sometimes, variable rates are broadly lower than fixed rates. Other times, the opposite can be true.
That’s largely because of how lenders tend to price their interest rates. Variable rates typically reflect interest rates on the market right now, while fixed rates reflect where a lender expects rates to be during the fixed term.
So, if fixed rates are lower than variable rates when you’re shopping for a home loan, it might be the case that lenders forecast rates to fall in the coming months and years. If fixed rates are higher than variable rates, though, lenders might be anticipating rates to rise sooner rather than later.
Beyond the actual rate, whether one option works out cheaper than the other can also depend on a variety of factors, like future cash rate hikes or cuts, if you’re in the position to make additional repayments or use interest reducing features that typically come with variable rate loans, and associated fees.
Borrowers will often look to fixed rates when cash rate hikes appear likely, as fixing can mean their repayments won’t rise, or if they’re simply looking for more certainty.
Who decides when variable interest rates go up or down?
Your lender decides whether to put your rates up or down, guided to a certain degree by both its own operating costs and the cash rate set by the Reserve Bank of Australia (RBA). The cash rate in large part determines banks’ operating costs, as it represents how much they must pay to borrow on the overnight money market (which many need to do in order to meet the banking watchdog’s liquidity requirements).
Your lender is not required to set rates based on the cash rate, however it will generally follow the RBA closely. If it puts rates up, your lender will typically pass this additional cost onto you in the form of increased rates, and if the RBA drops rates, lenders will generally do the same to stay competitive.
Even when the cash rate is steady, variable rates can change due to other factors.
What are the pros and cons of a variable rate home loan?
Pros
- Flexibility: Variable rate loans are generally more flexible than fixed rate ones as you can make unlimited additional repayments, bringing down the balance of your loan faster. You can also exit the loan agreement by refinancing or selling your property without having to pay break fees.
- Potential for lower repayments: Variable interest rates can fluctuate. While they can rise, if your interest rate goes down, so will your repayments.
- Features: Variable rate home loans may help you streamline your everyday finances thanks to features like offset accounts and redraw facilities.
Cons
- Potential for higher repayments: Just as interest rates can go down, they can also go up. Even if your repayments were low in the beginning, they could get much higher and stay that way if interest rates go up for prolonged periods.
- Uncertainty: The fact you don’t know whether your interest rate will rise or fall can be a source of uncertainty and can make it challenging to budget over the long term.
- Higher fees: Variable rate home loans may come with more features, but associated fees could make them more expensive than fixed-rate home loans, which generally do not have as many bells and whistles.
How to save with a variable rate loan
- If you’re actively saving money, think about taking advantage of offset accounts, redraw facilities, and extra repayment options to reduce the amount you’re paying in interest.
- If you’re on a strict budget, consider a basic variable rate home loan with a lower interest rate.
- Consider changing your repayment cycle from monthly to fortnightly or weekly, as interest is usually calculated daily on your remaining balance and, if you’re paying down your balance more often, you’ll be charged less overall interest. You might also find switching to fortnightly or weekly repayments means you automatically pay more of your debt down each year.
- Negotiate your rate with your lender. The refinancing market for variable rate home loans can be quite competitive, so your lender may be willing to reduce your rate or offer you perks to keep you as a customer.
- Compare interest rates regularly by using the comparison table above. That way you can ensure you’re on a competitive rate.
- If you’re looking to refinance, you might want to consider the cashback deals on offer.
