Variable Interest Rates move up and down with market interest rates, along with an index. The main benefit of Variable Interest Rates is that they are at least 1-2 percent less than fixed interest rates. Even if the Variable Interest Rates is higher than Fixed Rate, it is only going to be for a small period of the loan tenure. The rate will definitely fall over long period and the borrower will save his hard earned money in the long run.

But the drawback with it is that it is uneven throughout the loan tenure and hence makes budgeting difficult for the borrower. The borrower has to spend thousands per month as their EMI’s change from time to time.

Variable Interest Rates is also known as floating interest rate. It uses an index or other base rate for establishing the interest rate for each relevant period. Certain banks prefer to lend with Variable Interest Rates as they are able to raise their funds through deposits, bonds etc.

This rate is comparatively cheaper to the borrower as compared to fixed rate. Since this rate is flexible, many credit companies can offer you good deals to get a credit card, a mortgage, or a personal loan with better conditions that those signed at a fixed rate

The Reserve bank of Australia sets the cash rate for variable home loan interest rates. Home loans taken on Variable Interest Rates usually have the highest repayment. As a borrower, you first need to know the types of rate of interest your lender offers you so that you can estimate the cheapest mode of repayment which will suit your pocket. When the market rate is high, the variable rates are comparatively higher than fixed rate because interest rates are likely to fall in the tenure of the loan.