The biggest decision after choosing a lender
Once you've settled on which lender to go with, you'll face one of the most consequential choices in your mortgage: fixed or variable rate? There's no universally correct answer. It depends on your personal circumstances, risk tolerance, and financial goals. This guide breaks down everything you need to know.
What is a fixed rate home loan?
A fixed rate loan locks your interest rate for a set period, typically 1 to 5 years. During that period, your repayments won't change regardless of what the Reserve Bank of Australia (RBA) does with the cash rate.
Advantages of fixed rates
Certainty and budgeting comfort. Your repayment is the same every month, making it easy to budget. This is particularly valuable for first home buyers adjusting to mortgage repayments for the first time.
Protection from rate rises. If the RBA increases the cash rate during your fixed period, your rate doesn't move. During the 2022–2023 rate hiking cycle, borrowers on fixed rates were shielded from the 13 consecutive increases that added hundreds of dollars per month to variable rate borrowers' repayments.
Peace of mind. Knowing your exact repayment removes financial anxiety for many borrowers, allowing you to plan with certainty.
Disadvantages of fixed rates
Break costs can be painful. If you want to exit your fixed loan early (to sell, refinance, or make large extra repayments) lenders charge a break fee. These can be substantial, sometimes tens of thousands of dollars, depending on how much rates have moved since you fixed.
Limited flexibility. Most fixed loans restrict extra repayments (often capping them at $10,000–$20,000/year) and don't allow offset accounts.
You might miss out on rate drops. If the RBA cuts rates during your fixed period, your rate stays the same while variable borrowers benefit.
Refinancing is harder. Break costs make it expensive to move lenders mid-term, even if a significantly better deal is available.
What is a variable rate home loan?
A variable rate fluctuates in line with market conditions, primarily the RBA cash rate. When the RBA cuts, your rate typically falls; when the RBA raises rates, yours goes up too (though not always immediately or by the same amount, as lenders set their own rates).
Advantages of variable rates
Full flexibility. Make unlimited extra repayments, pay off your loan faster, and access a redraw facility or offset account to reduce interest.
No break costs. You can refinance, sell, or pay off your loan at any time with minimal penalty.
Benefits from rate cuts. When the RBA cuts rates (as it did aggressively in 2020 and has begun again in 2025), your rate and repayments fall automatically.
Access to offsets. Offset accounts are almost exclusively on variable loans. An offset account can dramatically reduce the interest you pay over the life of your loan.
Disadvantages of variable rates
Repayment uncertainty. Your monthly repayment changes with rates, which can be stressful and difficult to budget around, particularly if rates rise sharply.
Rate risk. If the RBA enters a rate-hiking cycle, your repayments increase, which can strain your budget.
Split loans: the best of both worlds?
A split loan divides your mortgage into two portions: one fixed, one variable. For example: 60% fixed, 40% variable. This gives you:
- Certainty on the fixed portion
Split loans are popular with borrowers who want some predictability without sacrificing all flexibility. The split ratio is entirely up to you.
Which is right for you?
Consider fixed if you:
Consider variable if you:
Consider a split if you:
The offset account factor
One often-overlooked reason to favour variable loans is the offset account. An offset account links to your home loan and reduces the interest calculated on your mortgage. Every dollar sitting in your offset is a dollar you're not paying interest on.
For example: a $600,000 loan with $50,000 in an offset account calculates interest as if the balance were $550,000. At 6%, that's saving roughly $3,000/year in interest — tax-free.
Over a 30-year loan, offset accounts can save hundreds of thousands of dollars and shave years off your loan term.
Current rate environment (as of early 2025)
The RBA began cutting rates in early 2025 after the aggressive hiking cycle of 2022–2023. In a rate-cutting environment, variable rates become more attractive as borrowers benefit from each cut.
Fixed rates at the time of writing are typically priced above variable rates, which means you're paying a premium for the certainty. Whether that premium is worth it depends entirely on your personal situation.
Important: Rate environments change. Always get current rate quotes and forecasts when making this decision.
Our recommendation
There's no single right answer, but there are clear wrong answers for specific situations. A $500,000+ loan with a tight budget and no buffer needs more protection than someone with six months' repayments in savings.
The best way to decide is to have this conversation with a broker who understands your full financial picture. We'll model both scenarios with real numbers from real lenders, so you can make an informed decision rather than guessing.
Book a free call and we'll walk through the fixed vs variable question based on your specific situation.