Variable Rate Loans are home loans where the interest rate varies (can either rise or fall) over time. Interest rate changes occur with changes in the Cash Rate, which is set by the Reserve Bank of Australia (RBA), and can also be increased or decreased independently by lenders to offset the cost of funding home loans.

Most lenders offer two main types of variable rate loans, a basic and a standard loan. There are also introductory rate loans, also known as honeymoon rate loans, that offer a discounted variable interest rate loan for a specified period before reverting to a standard rate loan.

Basic Variable Rate Loans

Basic variable loans offer a discounted rate with minimal features. Generally, these loans do not attract ongoing maintenance fees and they have a redraw facility. Some lenders offer an offset account at an added monthly fee.

Standard Variable Rate Loans

Standard variable loans are prime home loans offering a range of features. They usually attract an ongoing monthly maintenance fee but offer a range of features that may include an offset account, the ability to split your loan, and changes to your home loan options. These loans are usually offered with a package that, for an annual fee, offers a discount on the rate, no application fees, discounts on other products the lender offers and, in some cases, no fees for switching, splitting or changing your home loan options.


The following are advantages related to most variable rate loans:

  • If the interest rate falls, so do your repayments or the amount of interest charged against your loan.
  • Unlimited extra repayments can be made on your loan. In most cases, these extra repayments can be accessed if required through a redraw facility.
  • Generally changes can be made to your home loan options, including the repayment frequency for principle and interest repayments (weekly, fortnightly or monthly), partial splits, repayment amounts, and repayment type (interest only or principle and interest).
  • A 100% offset facility can be utilised.


The following are disadvantages related to most variable rate loans:

  • If the interest rate increases, so do your repayments.
  • Increased repayments due to rising interest rates can put pressure on household budgets and the impact of possible future rate rises should be considered when applying for your home loan.