Glossary
Variable Rate
An interest rate that moves with the market
A variable rate is one that resets periodically in line with market rates, typically every six or twelve months. When the policy rate rises, so does what you pay.
Variable rates usually start lower than fixed ones. The bank is handing you the risk of rate changes and discounting the price in return, which is why the current number looks attractive.
The difficulty appears when that risk materialises. On a 300,000 loan, a two-point rise costs 6,000 more a year, or 500 a month. The longer the term, the more likely you pass through a period of large rate moves.
The test is not prediction but capacity. If repayments would still work with rates two or three points higher, variable is defensible. If that scenario would disrupt your life, fixed is worth the premium. Hybrid loans that fix the rate for an initial period and then float are common. If you plan to sell the property in five years, fixing only those years can be the sensible middle ground.