Fixed versus variable home loan: Which is right for you?
Fixed rates offer more certainty because repayments don't change. But you can repay a variable rate faster and these loans usually have lower interest rates.
Variable interest rates can change at any time (up or down) and tend to offer slightly lower rates. You can pay them off faster, get more access to features like offset accounts and refinance without a break fee.
Fixed interest rates cannot go up (or down) for the fixed period (usually 1-5 years). You never have to worry about rates rising. But these loans are harder to repay faster, rarely have offset accounts and have a fee if you exit early.
More flexible. Many variable rate loans come with flexible repayment options and let you make extra repayments.
Changes. Your lender can change your interest rate at any time (up or down).
Watch your rate. You need to keep an eye on your interest rate and consider switching if it gets too high.
Fixed
No change. Your interest rate won't change at all during the fixed period.
Less to worry about. You can "set and forget" your rate and never have to worry about it changing during the fixed period.
Higher fees. Fixed rate loans often have higher exit fees.
Refinancing. It's often harder to refinance to another loan during the fixed rate period because of fixed loan break costs.
Fewer features. Fixed rate loans are less likely to have offset accounts or redraw facilities.
When the fixed period on a home loan ends, it reverts to a variable rate. As most home loans have 30-year terms, even if you do fix your rate for a few years, most of your loan will end up being variable anyway.
"I locked in my home loan at 1.98% for 3 years in December 2021, which means I benefitted from three years of super low rates. A month after we locked it in, rates when up to 2.59% and by the time the fixed rate ended late 2024, it was at 6.59%! The situation has changed a lot now, and I wouldn't fix again while we're in a rate drop environment. But we were very lucky with the timing, and saved tens of thousands of dollars."
The real question is what do you want from your home loan. This helps you decide which rate type suits you best. Here are some examples to help you think about your own situation.
I want to know exactly what my repayments are each month. You might want to go with a fixed rate loan. With the certainty of an unchanging rate you can budget safe in the knowledge that your repayments won't vary. This means you can basically forget about your home loan for the fixed period.
I want the lowest possible rate and I'm happy to switch lenders. Go with a variable loan (probably). Variable rates are usually more competitive than fixed rates, although that's not always the case. But if you're a deal hunter who's always after a lower rate and is happy to compare and refinance regularly, then a variable mortgage probably gives you more options and is easier to refinance.
I want to repay my loan as quickly as possible. In this case you want the lowest interest rate and a mortgage which allows for extra repayments. This is more likely a variable rate but some fixed rate loans allow extra repayments too.
I may need to refinance my loan soon or sell my property. If you think you're likely to exit a home loan soon, either by repaying it, selling the house or refinancing for some other reason, you probably want a variable rate loan. This is because a fixed rate loan has break costs that can run to thousands of dollars.
If you still can't decide which rate type is right for you, there's a third option.
The third option: Split rates
If you really like the idea of fixing your interest rate, but you don't want to lose the flexible features available on your variable loan, you can choose to split your home loan. A split rate home loan is when you divide your loan into two (or more) portions; one locked into a fixed rate and the other variable.
This lets you enjoy some of the advantages of both rate types at the same time.
Fixed? Variable? Split?
Can't decide? Compare all your rate options in one place.
There's really no good or bad time to fix your home loan rate. It depends on your goal.
If your goal is to lock in the lowest rate possible, timing your rate fix is very tricky. It worked for a lot of borrowers in 2020 and 2021, when some fixed rates were below 2%.
In the current market, variable rate loans are dropping as the RBA lowers the cash rate. So going variable could work out cheaper.
If you're fixing because you're happy with your current repayments and want total certainty about your loan costs each month, then fixing could be worthwhile at any time. You just might pay a premium for the privilege.
Richard Whitten is Finder’s Money Editor, with over seven years of experience in home loans, property and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Graduate Certificate in Communications from Deakin University. See full bio
Richard's expertise
Richard has written 594 Finder guides across topics including:
If we sell our house after 5 years and our loan is variable over 25 years do we have to pay the whole interest owing for total of 25 years or does the bank work out interest owing for 5 years and penalty fees?
JodieNovember 25, 2015
Hi Cath,
Thank you for reaching out to finder.com.au a financial comparison website.
If you have been repaying your loan with principal and interest repayments you will only be repaying the remaining principal and interest amount that you owe to the lender, they will not also work out how much interest you would have repaid during the life of your loan.
You may be able to ask your lender for a payout amount for a specific date to give you an idea of how much you will repay.
Home loan cashback deals can help you refinance to a cheaper interest rate and get a lump sum cash payment. Compare the latest deals and check your eligibility today.
What is an offset account? It can save you thousands in interest and help you own your home sooner.
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If we sell our house after 5 years and our loan is variable over 25 years do we have to pay the whole interest owing for total of 25 years or does the bank work out interest owing for 5 years and penalty fees?
Hi Cath,
Thank you for reaching out to finder.com.au a financial comparison website.
If you have been repaying your loan with principal and interest repayments you will only be repaying the remaining principal and interest amount that you owe to the lender, they will not also work out how much interest you would have repaid during the life of your loan.
You may be able to ask your lender for a payout amount for a specific date to give you an idea of how much you will repay.
Regards
Jodie
Regards
Jodie