How to choose between a fixed-rate or variable-rate home loan
- Fixed rate home loans provide budgeting certainty as the interest and repayments stay the same throughout the loan term.
- Variable rate mortgages provide flexibility and potential savings as they benefit from rate cuts and typically come with added features.
- Split loans let borrowers divide their loans into two (or more) portions, one on fixed rate and the other on variable rate.
Taking out a home loan involves deciding whether to fix your interest rate or leave it variable and, therefore, subject to the vagaries of financial markets.
There is no one-size-fits-all answer to this quandary. Let's look at the different rate types and outline some of the key advantages and disadvantages of both to help you decide which is the best move for you.
Fixed rate vs Variable rate home loans: How to choose
If you're new to the market or worried about interest rates going up in the near future, fixing all or part of your home loan (i.e., splitting it) can offer valuable peace of mind.
On the other hand, if you're more confident with reading the interest rate environment (although even experts can struggle with this), you may find a variable-rate home loan is more suited to your needs.
Home loan types compared: Fixed vs Variable vs Split
Feature | Fixed | Variable | Split |
How rate works | Locked in (typically 1-5 years) | Moves up or down with the cash rate and lender pricing | Part fixed, part variable (each portion behaves independently) |
Repayment certainty | ✅ | ❌ | ✅/❌ |
Benefit if rates fall | ❌ | ✅ | ✅ Only the variable portion benefits |
Protected if rates rise | ✅ | ❌ | ❌/ ✅ Fixed portion protected, variable portion exposed |
Unlimited extra repayments | ❌ (typically capped at $10k-20k per year) | ✅ | ✅ Unlimited on variable, capped on fixed |
Offset account | ❌ (often partial only if available) | ✅ | ✅ Common for variable portion |
Redraw facility | ❌ | ✅ | ✅ Available for variable portion |
Break fee | ✅ | ❌ | ✅ Applies to fixed portion |
Savings.com.au's two cents
Fixed and variable rate home loans each have their own appeal.
Fixed rates offer repayment certainty, but they’re harder to time. They also require more commitment, and breaking a fixed term can cost you thousands in fees. Meanwhile, variable rates give you flexibility and the chance to benefit from rate cuts, though your repayments will rise if the market does.
In the end, the best home loan is the one that fits your budget, goals, and risk comfort, ideally with a sharp rate, low fees, and the right mix of features.
What is a fixed rate home loan?
A fixed rate home loan is a home loan that locks in (or 'fixes') your interest rate for a set period of time (usually 1-5 years). The interest rate stays the same over the term, regardless of what happens to market interest rates or RBA cash rate changes.
During the fixed term:
- Your repayments don’t change.
- Your loan typically reverts to a variable rate when the term ends, unless you negotiate a new fixed term of refinance.
Pros and cons of fixed rate home loans
Deciding to fix your home loan rate for a set period comes with both advantages and disadvantages.
Pros of fixed rate home loans
Repayment certainty
By knowing exactly what your repayments will be, you'll be able to plan ahead and budget for the future. This factor often makes fixed-rate home loans a popular choice for investors over the first two to three years of owning an investment property.
Work out your estimated home loan repayments using our Mortgage Repayments Calculator.
Protection from rate rises
Another reason why a fixed rate can be a good option is that any interest rate rises won't affect the amount of interest you'll have to pay during the fixed term.
Cons of fixed rate home loans
Miss out on rate cuts
On the flip side, if interest rates drop, your repayments stay the same and you won’t benefit from a lower rate until the fixed term ends. During this time, you might be paying more in interest than someone who has a variable-rate home loan.
Limited extra repayments
Most lenders cap additional loan repayments to $10,000-$20,000 per year before fees apply. This effectively restricts your ability to get ahead on your mortgage.
Redraw facility and offset accounts rarely available
The ability to redraw from your home loan is frequently not offered on fixed rate loans, effectively reducing their flexibility. Full offset accounts are likewise uncommon on fixed loans, and where offered, they’re usually partial or limited offset.
Risk of higher revert rates
When the fixed period ends, chances are your loan will revert to the lender's standard variable rate, which is often higher than competitive market rates – sometimes more than 200 basis points higher than some of its lowest rates.
See also: Why is the revert rate in a fixed mortgage so important?
When fixed home loans are best
When you need repayment certainty
Fixed rate home loans are ideal when you want budget certainty for short to medium term as your repayments stay exactly the same for the next one to five years.
This is especially helpful for first time home buyers or households managing tight cash flow, or essentially anyone who prefers to know exactly how much they'll be up for in repayments no matter what happens to interest rates during the fixed period.
If you are risk averse
If you don't feel comfortable with risk and you value stability over features like unlimited extra repayments, a fixed rate home loan can offer peace of mind. You know exactly what you’ll pay, without worrying about rate shocks.
When you expect interest rates to rise
If market forecasts suggest rates may increase, locking in a fixed rate can protect you from higher repayments. Historically, fixed loans are popular during rising rate environments as borrowers want to shield themselves against ongoing rate volatility,
When you’re establishing your investment property
A fixed rate offers a kind of financial buffer for investors while they establish tenants, optimise rental returns, or build savings.
Opting to fix their investment property loans during the first few years can also enable investors to manage cash flow better as early ownership often comes with upfront costs such as maintenance and renovations.
What is a variable rate home loan?
A variable-rate home loan is a mortgage where the interest rate moves (or 'varies') with changes in the cash rate and your lender’s funding costs. This means your interest rate (and repayments) may rise and fall over the term of your loan.
Key features of a variable rate home loan
- Rate changes with the market
- Greater flexibility with extra repayments
- No break fees
- A variable rate home loan gives you more flexibility and potential savings, especially if interest rates fall. However, this particular feature also exposes you to repayment uncertainty if rates rise.
Considering taking out a variable rate home loan? Below is a table of variable rate mortgages with some of the most competitive interest rates on the market:
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.04% p.a. | 6.08% p.a. | $3,011 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
6.04% p.a. | 6.29% p.a. | $3,011 | Principal & Interest | Variable | $248 | $350 | 70% | |||||||||||||
6.24% p.a. | 6.27% p.a. | $3,075 | Principal & Interest | Variable | $0 | $350 | 70% |
Pros and cons of variable rate home loans
Variable rate home loans come with a set of advantages and drawbacks.
Pros of variable rate home loans
Benefit from interest rate drops
If the RBA cuts the cash rate or lenders reduce rates, the repayments on your variable rate home loan will also decrease, saving you money without needing to refinance.
- Take note: The repayment amount might not automatically adjust to the minimum, in which case you may have to contact your lender should you wish to lower it.
Greater repayment flexibility
Variable rate home loans usually come with appealing flexible features like the ability to make unlimited additional repayments or utilise an offset account, which help pay off your loan sooner and save you interest over time.
Another advantage can include unlimited redraws where you are able to withdraw any extra repayments you have made.
No break costs
Unlike fixed rate home loans where break fees typically apply if you close your loan before the term ends, you can switch lenders, refinance, or restructure your variable rate loan at any time without penalty.
See also: How break fees on fixed-rate home loans are calculated
Cons of variable rate home loans
Exposure to rate increases
If the cash rate increases, your lender will pass on the rate hike to variable rate home loan borrowers, thereby increasing your repayments.
- Take note: Some lenders don’t automatically reduce repayments when rates fall (you have to request it), but when rates rise, lenders typically increase your minimum repayments automatically on the effective date.
Uncertainty and budgeting difficulty
Since your rate isn’t locked in and repayments can change, budgeting for your interest payments is more difficult because you'll have to take into account potential rate rises. If you aren't prepared for them, you could have trouble keeping up with repayments.
When variable rate home loans are best
When you expect interest rate cuts
Variable loans are ideal when the RBA is likely to cut rates or when markets anticipate easing, because this means the interest rate you got when you signed on and the repayments you’re currently making may potentially drop.
When you want access to an offset account and redraw facility
If you want greater flexibility by means of making unlimited extra repayments, accessing those extra repayments through a redraw facility, and using an offset account to reduce interest, variable loans will be best suited for you.
Variable loans generally come with more tools than fixed loans, perfect for borrowers who want greater flexibility and control over managing their mortgage.
When you can comfortably handle potential repayment fluctuations
If your budget can absorb potential rate increases, a variable loan provides flexibility and the possibility of future savings should rates fall.
Can I split my loan? What is a split home loan?
If you’re still undecided whether to choose a fixed or a variable rate home loan, you may also consider splitting your loan between fixed and variable.
See also: What is a split home loan
A split home loan is a mortgage structure that lets you divide your loan into two or more portions – one on a fixed interest rate and the other on a variable interest rate. Effectively, this can help you ‘hedge your bets' on a rate rise or cut, helping to minimise the risks associated with interest rate movements.
At the end of the fixed rate period, you may have the choice of fixing that portion again (at the current fixed interest market rate) or simply letting it revert to the current variable interest rate.
Keep in mind though that the variable rate it reverts to could be higher than the variable rate you're already paying on the other portion of the loan.
How common are fixed-rate mortgages in Australia?
Just about all lenders in Australia offer both fixed and variable rate mortgages. The graph below shows variable vs fixed rate lending for new home loans taken out in Australia over recent years:
Generally, fixed-rate lending is more popular during times when interest rates are low (such as during the pandemic). When interest rates are expected to fall, variable rate lending is more popular.
The most common fixed-rate mortgages in Australia have terms between one and five years, with few lenders offering 10-year fixed rate terms, and even fewer offering 15-year terms.
Fixing a home loan rate: Things to consider
While having a fixed interest rate can be attractive to those who value stability and are risk-averse, it pays to remember they are not without their own risks. Here are a few things you should consider before locking anything in:
1. Could interest rates fall?
If you're tempted by some low fixed home loan interest rates, keep in mind that they may be low for a reason. A low fixed rate may be enticing, but it won’t feel so great if the RBA cuts the cash rate and variable rates drop while you stay locked in.
When lenders expect interest rates to fall, many try to tempt borrowers into taking out fixed rate home loans since it means fewer customers to pass future rate cuts on to. Fixing your rate is essentially a bet with your lender on where interest rates are heading.
- If rates rise – you win
- If rates fall – the lender wins
But lenders may have the odds stacked their way because they employ smarty-pants analysts in their loan pricing teams who have all the fancy graphs and data to help them forecast the market and set fixed rates accordingly. But that's not to say they're always right.
Common mistake borrowers make when fixing their home loan rate
The most common mistake is waiting too long to fix your rate. The best time to do it is BEFORE rates start to move.
We saw a clear shift toward the end of 2025. Commentary moved from expectations of rate cuts in October, to a more neutral stance in November, alongside rising inflation through November and December. That was when lenders began pricing in potential rate increases for February.
In that environment, the ideal time to fix was around October 2025, although there were still opportunities into November and December.
By March 2026, following two rate increases, many borrowers are now rushing to fix. While it’s certainly something to consider, the reality is that the most competitive rates for this cycle are now behind us.
2. Break fees to pay
Before fixing, ask yourself whether you can commit to the full term. Because if you take out a fixed loan then later decide to refinance to a lower variable rate, you could face break fees, which can amount to thousands of dollars. This also applies if you want to pay off the loan before the end of the fixed period, as you might have to do if you're selling your home.
See also: Should you fix your home loan interest rate?
3. The rate you will revert to
Once your fixed term ends, your loan typically shifts to the lender’s standard variable rate, which is often much higher than their most competitive rates. You'll then probably want to refinance to a lower rate – a process which can come at a cost.
Frequently Asked Questions
Not always. Variable rates move with the market and can therefore be higher or lower depending on economic conditions and lender expectations.
Variable mortgage rates move in response to market conditions and RBA (Reserve Bank of Australia) decisions with regards to the country’s official cash rate.
The RBA Board meets and reviews the cash rate eight times a year.
When the RBA lifts the cash rate, lenders usually increase variable rates quickly, raising your minimum repayment. When rates fall, lenders typically pass the reduction on to borrowers, though not always immediately. The repayment amount might not automatically adjust to the minimum and you may have to contact your lender should you wish to lower it.
Yes, switching your mortgage from a variable rate to a fixed rate can be relatively simple, whereas switching from a fixed to a variable rate before your term ends can be costly due to break fees.
A fixed-rate home loan is a legal contract guaranteeing your mortgage will carry a fixed rate of interest for a specified amount of time. If you decide to break a fixed-rate home loan contract, your existing lender must be compensated for any loss they incur. Expect to pay:
- A break fee (often substantial)
- A discharge fee (usually a few hundred dollars)
Each lender calculates break costs differently, and you won't know exactly what you're up for until the lender runs the numbers. You'll need to account for the break fee when deciding whether you're really better off switching loans.
There’s low demand for long fixed terms, and Australia’s debt market isn’t set up to easily sell long‑term fixed‑rate loans to investors. This means lenders are generally unwilling to offer them because it means they're likely to be stuck with 30-year fixed-rate loans on their balance sheets.