Fixed vs variable rate home loans: which is right for you?

One of the most common questions I hear from borrowers — whether they're buying for the first time or refinancing — is: should I go fixed or variable? There's no single right answer, but there is a right answer for your situation, and it depends more on your own circumstances than on where anyone thinks rates are headed. Here's how to think through it.

What is a fixed rate home loan?

A fixed rate home loan locks in your interest rate for a set period — typically between one and five years. During that time, your rate doesn't change, regardless of what happens in the broader economy or with the Reserve Bank of Australia's cash rate.

At the end of the fixed term, your loan usually rolls onto the lender's standard variable rate (sometimes called a "revert rate"), unless you refinance or fix again.

Pros of fixing your rate:

• Certainty. Your repayments stay the same for the fixed period. This makes budgeting straightforward, especially if you're on a tight budget or managing other financial commitments.
• Protection from rate rises. If interest rates increase during your fixed term, you're insulated. Your rate — and repayment — stay exactly where they are.
• Peace of mind. Many borrowers simply prefer knowing exactly what they'll pay each month.

Cons of fixing your rate — all product- and lender-dependent:

• Break costs. If you need to exit the loan early — for example, if you sell the property or refinance — most lenders charge a break cost. The amount depends on the lender, how much of the fixed term remains, and how interest rates have moved since you fixed; it can be substantial, and it's worth asking your lender for an estimate before you fix, not after you need to break.
• A discharge fee may still apply. Separately from any break cost, most lenders charge an administrative discharge fee when you close a loan account — fixed or variable. Ask your lender for its current fee before you commit.
• Missing rate drops. If the cash rate falls and variable rates follow, you're locked into your higher fixed rate and can't benefit until the fixed term ends.
• Offset and extra repayments are limited on many fixed loans. Some lenders don't offer an offset account on fixed products at all; others cap annual extra repayments (commonly to a set dollar amount) and charge a break cost if you exceed the cap. These limits vary by lender and product — check the specific loan's terms rather than assuming a blanket rule.

What is a variable rate home loan?

A variable rate home loan has an interest rate that can move up or down over the life of the loan, typically in response to changes in the RBA cash rate and each lender's own pricing decisions.

Pros of variable rates — again, product- and lender-dependent:

• Flexibility. Many variable loans allow extra repayments, often uncapped, letting you pay down your loan faster when you have the capacity. Confirm the specific loan's terms — not every variable product works this way.
• Offset accounts. Many variable loans offer access to an offset account — a transaction account where your balance reduces the interest calculated on your loan. A $50,000 offset against a $500,000 loan means interest is calculated on $450,000. Offset availability and any linked-account fees vary by lender and product.
• Redraw facilities. Where offered, extra repayments can usually be redrawn if you need access to funds later, though some lenders apply redraw fees or minimum-amount rules.
• No fixed-rate break cost. You can generally refinance, sell, or pay out a variable loan without a break cost — though a discharge fee, as above, can still apply on exit.
• Rate movements pass through in both directions. When the RBA moves the cash rate, lenders may pass on the change to variable rate borrowers, but they aren't obliged to pass on the full movement or to do so immediately.

Cons of variable rates:

• Rate uncertainty. Your repayment can go up. In a rising rate environment, this can put meaningful pressure on your budget.
• Planning is harder. Budgeting is less predictable when your monthly repayment can change.

Split loans: the best of both worlds?

Many borrowers choose a split loan — fixing a portion of their mortgage while keeping the remainder on a variable rate. This approach offers:

• Partial protection against rate rises on the fixed portion
• Flexibility, and potentially offset account access, on the variable portion — subject to the same product-specific conditions described above
• A middle ground for borrowers who don't want to commit entirely to one structure

A split isn't right for everyone, but it's worth considering if you value both certainty and flexibility.

How to choose

Ask yourself these questions:

How important is payment certainty to you? If you're on a single income, have a tight budget, or simply dislike financial uncertainty, fixing can be worth it for the peace of mind, even at a premium to the variable rate on offer.

Do you have savings that could sit in an offset account? If you hold meaningful savings, a variable loan with an offset could reduce the interest you pay — the actual saving depends on your balance, the loan amount and the rate, and is worth modelling for your own numbers rather than assuming.

Are you likely to sell or refinance in the near term? If there's a real chance you'll exit the loan within a fixed period, ask what the break cost would look like before you fix — it can be a significant, lender-specific number.

What's your risk tolerance? Some borrowers genuinely don't mind rate volatility; others find it stressful. Neither preference is wrong.

My recommendation

I don't believe in one-size-fits-all advice on this question, and I don't base a recommendation on where anyone thinks the cash rate is headed next. What I do believe is that the right answer depends on your income, savings, plans and risk appetite.

What I typically recommend: start with your own circumstances, then compare the actual numbers for the specific products available to you — what a fixed rate would cost against what you'd realistically save with an offset on a variable loan, and what a break cost would look like under each scenario. A conversation with me can help you compare those specific numbers rather than general commentary.

If you'd like to talk through your options, I'm here to help.