Fixed or variable? It's one of the most common questions home loan applicants face. Here's a clear, practical breakdown of both options — and the split loan middle ground.
- Fixed rates give certainty — you know exactly what you'll repay for the fixed term, regardless of RBA decisions.
- Variable rates offer flexibility — extra repayments, redraw, and offset accounts are typically included.
- A split loan gives you certainty on one portion and flexibility on the other.
- Locking in a fixed rate to avoid projected rate rises is a market-timing bet that doesn't always pay off.
One of the most common questions first home buyers and refinancers ask is: should I choose a fixed or variable rate? Here's a clear, practical breakdown.
Fixed Rate Home Loans
A fixed rate locks your interest rate for a set period — typically 1, 2, 3, or 5 years. Your repayment doesn't change regardless of what the Reserve Bank does.
Pros: Certainty on repayments, protection from rate rises, easier budgeting. Cons: Break costs if you leave early, limited extra repayments (typically $10,000-$20,000/year cap), no offset or redraw on most products, and the revert rate risk — when the fixed term ends, your loan rolls to the Standard Variable Rate which is rarely competitive.
Variable Rate Home Loans
A variable rate moves up or down with market conditions.
Pros: Unlimited extra repayments and redraw, offset accounts available, no break costs, and rate drops flow through automatically. Cons: Repayments can rise when rates increase, harder to budget with certainty.
The Split Loan Option
Many borrowers fix part of the loan and leave the rest variable. For example, on an $800,000 loan: $500,000 fixed for 3 years + $300,000 variable with offset account. This gives rate certainty on the larger portion while maintaining flexibility (extra repayments, offset) on the variable portion.
Should You Fix Now?
Consider: if you value certainty over flexibility, a fixed rate may suit you. If you have an offset account, variable typically offers more benefit. If you're planning to sell or refinance, avoid fixing — break costs could be substantial. Moneysmart's comparison of fixed vs variable home loans provides a neutral overview.
Timing Your Decision
Nobody can predict where rates will go. Focus on what works for your budget, lifestyle, and plans. A broker can model repayments under different rate scenarios.
Want to compare fixed and variable rates across 40+ lenders? Contact Sam for a free assessment. Also use our home loan repayment calculator to model repayments at different rates.
Frequently Asked Questions
Can I switch from fixed to variable before the end of the term?
Yes, but you may incur break costs. These are calculated based on wholesale rate movements and can be substantial. Ask your lender for a break cost calculation before making the decision.
Should I fix my home loan now?
This depends on your circumstances, the current rate environment, and your plans. We recommend discussing your specific situation rather than following a general rule — contact us for a personalised assessment.
