Variable Interest Rate

Variable interest rate is the rate set by the lending institution in response to the rate set by the RBA (Reserve Bank of Australia) to maintain inflation at between 2% and 3%.

Once inflation goes to around 3% the RBA will increase base rates and in response to that the various lenders will adjust their variable rate.

In the early days a lot of borrowers were hurt by variable rates which rose to around 18% due to the incredible inflation where home prices were rising consistently at unprecedented levels.

Whilst variable interest rates appear to be on the rise, it is definitely wise to consider fixing your interest rate. Rates can be fixed for periods between 1 and 10 years depending on the lender's policy.