Why Variable Rate Home Loans are a Smart Choice for Canberra Home-Buyers

Choosing the right home loan can be a bit of a puzzle, especially when deciding between fixed and variable rates. 

If you’re leaning towards a variable rate home loan in Canberra, you’re in good company. These loans are popular for their flexibility and the potential for savings.

However, understanding the ins and outs of variable rates and determining if they suit your financial goals requires some thought. 

This is where a mortgage broker’s expertise can really come in handy. They’ll walk you through the entire loan process, breaking down the benefits and potential risks, so you can make a confident choice.

Let’s take a closer look at the key benefits of opting for a variable rate home loan in Canberra and how it could align with your financial plans for 2025.

Benefits of a Variable Rate Home Loan

When you opt for a variable rate home loan, the interest rate on your loan isn’t locked in. It fluctuates over time, generally in response to changes in the Reserve Bank of Australia’s (RBA) cash rate. This might sound risky, but there are numerous benefits to this type of loan.

#1 Potential for Lower Interest Rates

One of the biggest draws of a variable rate loan is the potential for interest rate drops. When the Reserve Bank of Australia (RBA) lowers the cash rate, lenders often pass on these savings, reducing your loan interest rate and monthly repayments.

#2 Flexibility with Extra Repayments

Variable rate loans usually allow you to make additional repayments without penalty. This means you can pay off your loan faster and reduce the total interest you’ll pay over the life of the loan.

#3 Access to a Redraw Facility

Many variable rate loans come with a redraw facility, which lets you access any extra repayments you’ve made. This feature gives you a financial safety net, allowing you to withdraw funds if unexpected expenses arise.

#4 Offset Account Benefits

A common feature with variable loans is the offset account, where the balance in your account is offset against your loan balance. This can significantly reduce the interest you pay, potentially saving you thousands over the loan term.

#5 No Break Costs

Unlike fixed-rate loans, variable rate loans generally do not have break costs if you decide to refinance or pay off your loan early. This flexibility can be a major advantage if your financial situation changes or if you plan to sell your property.

The Impact of the Canberra Property Market in 2025

Understanding the local market is crucial when choosing the right home loan. As of 2025, Canberra’s property market is experiencing steady growth.

Median house prices have risen by 5.2% over the past year, now sitting at around $945,000, according to CoreLogic’s data. This increase reflects Canberra's strong demand and stable economic conditions.

For homeowners and investors, a variable rate loan might be a wise choice, especially in a rising market. Why? Because as property values increase, your equity in the property grows.

This gives you more flexibility to refinance, access additional funds, or even invest in other properties.

Potential Cost Savings

Variable rate loans also come with the potential for cost savings. When the RBA lowers the cash rate, lenders often pass on these savings to borrowers in the form of lower interest rates. This can reduce your monthly repayments, freeing up cash for other financial goals. 

For example, if your lender drops your variable rate from 6.00% to 5.50%, your monthly repayments on a $500,000 loan could decrease by around $150. Over a year, that’s an extra $1,800 in your pocket!

But what about the flip side? It’s true that rates can rise, increasing your repayments. However, the flexibility to make additional repayments or redraw on your loan can help manage these fluctuations, giving you more control over your finances.

Case Study: How a Canberra Family Saved with a Variable Rate Loan

Let’s look at a real-world example. Emily and James, a young couple from Canberra, recently bought their first home with a $600,000 mortgage. They opted for a variable rate loan with an interest rate of 5.85%. Initially, their monthly repayments were $3,523.

After a few months, they received a bonus from work and decided to make additional repayments of $300 per month. By doing this, they saved over $45,000 in interest and reduced their loan term by 4 years.

Furthermore, when interest rates dropped to 5.35%, their monthly repayments decreased to $3,384, freeing up extra cash for their growing family. Emily and James appreciated the flexibility of their variable rate loan, which allowed them to adapt their repayments to their changing financial circumstances.

Understanding the Risks

While variable rate loans offer many benefits, they do come with some risks. The primary concern is the potential for interest rates to rise, increasing your monthly repayments. This can put pressure on your budget, especially if rates rise significantly.

However, many lenders offer options to mitigate this risk, such as split loans, where you can divide your loan into a fixed-rate and a variable-rate portion. This approach provides some of the certainty of a fixed rate while still allowing you to benefit from potential rate drops on the variable portion of your loan.

It’s also important to consider your financial circumstances and risk tolerance. If you’re someone who values certainty in your repayment amounts, a fixed-rate loan might be more suitable. But if you can handle a bit of variability and want the potential for savings, a variable rate home loan could be the better choice.

Smart Tips for Managing a Variable Rate Home Loan

Making the most of your variable rate home loan involves strategic planning and ongoing management. Here are some practical tips to help you stay on top of your loan and ensure it continues to work in your favour:

1. Budget for Rate Rises: Always consider the possibility of rate hikes when setting your budget. By planning for a higher variable interest rate, you’ll be better prepared if your monthly payments increase during the loan period.
2. Make Extra Repayments: Whenever possible, make additional payments beyond your minimum repayments. This reduces your loan principal faster, provides a financial buffer during rate hikes, and can significantly lower your overall interest over the loan term.
3. Utilise Your Offset Account: If your variable home loan offers an offset facility, use it to your advantage. The funds in your offset account reduce the amount of interest charged on your loan balance, potentially saving you thousands over the loan period.
4. Regularly Review Your Loan: It’s important to regularly review your variable interest rate loan to ensure it aligns with your financial goals and personal circumstances. As market conditions and your financial situation change, you might need to adjust your loan features or consider refinancing.
5. Consult with a Loan Specialist: A mortgage broker or loan expert can provide tailored financial advice to ensure your loan is the best fit for your situation. They can also help you understand comparison rates, loan offers, and other loan products that might suit your needs better as your journey progresses.
6. Understand the Rate Term and Rate Period: Be aware of the rate term and rate period associated with your variable home loan rate. Knowing how long your current rate applies and how often it can change will help you anticipate any potential fluctuations in your repayment schedule.
7. Consider a Split Home Loan: A split home loan allows you to divide your loan between a fixed-rate and a variable interest rate portion. This approach can provide additional certainty by locking in a portion of your repayments while still benefiting from potential drops in the variable rate.
8. Factor in Break Fees and Other Costs: Understand the potential break fees and extra costs involved if you decide to refinance or pay off your loan early. While variable home loans generally have fewer break fees than fixed-rate home loans, it’s still important to be aware of any costs associated with early termination.
9. Evaluate Your Loan Application Journey: Regularly evaluate your loan application journey to ensure your credit criteria and eligibility criteria are still met. Changes in your personal circumstances could impact your eligibility for loan products or alter the loan amount you can access.
10. Stay Informed About Market Conditions: Keep an eye on the broader economic climate and rate environments. Changes in the RBA’s cash rate, government charges, or shifts in market rates can influence your loan rate and funding costs, affecting your overall repayment schedule.

FAQs

What is a variable rate home loan? 

A variable rate home loan has an interest rate that can change over time in response to market conditions, particularly the RBA’s cash rate.

Can I make extra repayments on a variable rate loan? 

Yes, most variable rate loans allow you to make additional repayments without penalties, helping you pay off your loan faster.

What is an offset account, and how does it work?  

An offset account is a transaction account linked to your loan. The balance in this account reduces the amount of interest you pay on your loan balance.

Are there risks with a variable rate loan? 

The main risk is that interest rates may rise, increasing your loan repayments. However, many borrowers find the flexibility and potential savings worth the risk.

How does a redraw facility work? 

A redraw facility allows you to access extra repayments you’ve made on your loan if you need funds for other purposes.

Can I switch from a variable rate loan to a fixed rate? 

Yes, you can generally switch to a fixed-rate loan, although you should check with your lender for any fees or conditions that apply.

How often do variable rates change? 

Variable rates can change at any time, depending on market conditions and decisions made by the lender in response to the RBA’s cash rate changes.

Conclusion

Choosing the right home loan, especially a variable rate option, can offer significant benefits when approached with the right strategy. By understanding how these loans work and keeping an eye on the market, you can make informed decisions that support your financial goals. 

If you're considering a variable rate home loan in Canberra or simply want to explore your options, our team of experienced mortgage brokers is here to help. Reach out today at 02 6173 6397 or visit Home Loan Brokers Canberra for personalised advice that’s tailored to your needs. Let us help you make the most of your home loan journey.