Understand how variable mortgage rates work.
A variable rate mortgage has an interest rate that can change over time. Learn what can cause mortgage rates to move, how changes may affect repayments and what to consider before choosing a variable-rate mortgage.
What is a variable rate mortgage?
A variable rate mortgage is a mortgage where the interest rate can change during the mortgage term. Unlike a fixed-rate mortgage, the rate is not locked at one level for the entire agreed period.
The way a variable rate is determined depends on the mortgage product. Some variable-rate products may be influenced by an external benchmark, while others are set by the lender according to their product terms.
Because the rate can change, your monthly mortgage repayment may also change. This makes understanding the product terms and planning for possible rate movements particularly important.
What can happen when mortgage rates change?
A variable mortgage rate can move in either direction. The exact change depends on the mortgage product and the factors that determine its interest rate.
Illustrative rate movement
This visual explains the concept only. It is not a forecast of future mortgage rates.
If the rate rises
A higher mortgage rate can increase the interest charged and may result in higher monthly repayments.
If the rate falls
A lower mortgage rate may reduce the interest charged and could lower your monthly repayment, depending on the mortgage structure.
If rates remain uncertain
Future payments can be harder to predict, so it can be sensible to leave room in your budget for possible repayment changes.
Not every variable-rate mortgage works in exactly the same way.
The phrase “variable rate” describes the fact that the interest rate can change. The actual mechanism used to determine that rate depends on the product.
This is why reading the mortgage terms is important rather than assuming every variable mortgage follows the same formula.
Understand what determines the mortgage rate and when it can change.
Check how a rate change could affect your monthly mortgage repayment.
Review any applicable caps, floors or conditions included in the mortgage terms.
Understand whether the variable rate applies for the whole term or a specific period.
A variable mortgage can offer flexibility, but your payments may move.
Whether a variable rate suits you depends on your circumstances, financial plans and ability to manage possible changes in mortgage repayments.
Potential benefits
Variable-rate mortgages can have features that appeal to borrowers who are comfortable with changing interest rates.
Important considerations
The main consideration is uncertainty. If the mortgage rate rises, the cost of borrowing can increase.
How can you prepare for changing mortgage payments?
A variable mortgage works best when the possibility of changing repayments is included in your household budget. Looking only at today's payment may not give you a complete picture of future affordability.
How does a variable rate compare with other mortgage options?
Each mortgage type has a different approach to interest rates and repayment certainty. The right option depends on your circumstances and the specific product terms.
Variable Rate Mortgage
The interest rate can change over time, which means monthly repayments may also change.
Rate flexibility →Fixed-Rate Mortgage
The interest rate is fixed for the agreed period, providing greater payment certainty during that period.
Payment certainty →Tracker Mortgage
The rate is linked to an external benchmark according to the terms of the specific mortgage.
Benchmark-linked rate →
Variable Rate Mortgage FAQs
Quick answers to common questions about variable mortgage rates, repayments and rate changes.
Understand the rate today. Plan for tomorrow.
Learn how variable mortgage rates work, consider possible repayment changes and compare mortgage options before making a borrowing decision.