Variable interest rate home loans

Variable home loan rates give you flexibility with the added benefit of extra features that save you money.


A variable interest rate home loan is affected by economic conditions both within New Zealand and around the world, so you can expect your home loan repayments to rise and fall over the term of your loan.

Variable interest rate home loans come in two forms, standard variable and basic variable. Both of these variable home loans work in a similar way but the main difference is the interest rate charged and how much flexibility is available.

How do variable home loan rates work?
The Reserve Bank uses interest rates to manage people’s expenditure, and thereby inflation and the economy in general. The decision on when and if to move interest rates is based on a range of economic indicators, including the Consumer Price Index (CPI), wages data, jobless figures, the Producer Price Index (PPI) and the performance of global financial markets. Your variable rate is loosely based on the official interest rate, however in recent times we have seen that lenders are free to move their variable rates independent of official Reserve Bank movements.

Standard variable home loan rates
Standard variable home loan rates offer borrowers flexibility with a range of optional features – such as redraw, extra repayments or access to a line of credit – in exchange for a slightly higher interest rate than a basic variable home loan rate. This range of features can help you to reduce the overall term and cost of your loan, making standard variable home loan rates the most popular choice of loan in New Zealand. Standard variable home loan rates are suitable for a broad range of borrowers.

Basic variable home loan rates
Basic variable home loan rates offer fewer features and flexibility than a standard variable home loan, but this is offset by providing borrowers with lower repayments. The basic variable rate can be lower than the standard variable rate by sometimes as much as 0.5% per annum. Limited flexibility may be available on some basic variable home loan rate products, or you may be able to add certain popular features on a fee-for-feature basis, but this will depend on the lender and the loan selected.

Pros and cons of a variable interest rate
Pros of a variable interest rate loan:
  • Your home loan repayments will fall when interest rates fall
  • You will have the opportunity to reduce your home loan balance faster
  • Can be very flexible and will often allow unlimited additional repayments
  • The average variable interest rate is generally lower than a fixed home loan rate
Cons of a variable interest rate loan:
  • Your home loan repayments will rise when interest rates rise
  • If interest rates rise quickly, your home loan repayments over a certain period of time may be more than those of a fixed interest rate home loan over the same period of time
  • If you have borrowed at or near your repayment capacity, it is risky if interest rates do rise

Related content