A variable rate home loan is one in which the interest rate is subject to change throughout the life of the loan. Unlike a fixed interest rate that is set for a period of time, a variable interest rate can fluctuate based on a range of economic factors, including changes to the official cash rate set by the Reserve Bank of Australia (RBA). When your variable home loan's interest rate rises or falls, so will your mortgage repayments.
Should you choose a variable rate home loan?
Whether a variable rate home loan is the right choice for you will depend on your individual financial situation and the kind of home buyer you are.
If you are a first home buyer
Variable rate home loans may offer more flexibility, but the added security offered by fixed rate home loans may appeal to some borrowers buying property for the first time. A set interest rate can provide a level of financial certainty and could help simplify your budget, allowing you to focus on building up equity in your home.
If you are an investor
If interest rates are tipped to fall, repayments on a variable rate investment loan could become more affordable. If you plan to sell the property or refinance in the near future, a variable rate loan might be more attractive if interest rates are lower than current fixed rate options. Plus, access to features on your investment loan may help to further minimise interest repayments.
If you are refinancing
You'll want to take stock of the current rate environment if you're considering refinancing. This may help you to better determine whether a fixed or variable rate will suit your budget for the foreseeable future. But if you originally signed up to a no-frills, basic mortgage, you could also consider switching to a variable rate home loan that offers helpful features, like an offset account.