Fixed vs Variable Home Loans: Which Should You Choose?
A licensed broker’s plain-English guide to how each option really works, what a fixed rate costs you in flexibility, and how to decide with confidence.
7 min readAustralia-wide
It is one of the first questions almost every borrower asks: should I fix my home loan rate, or leave it variable? There is no single right answer, but there is a right answer for your situation, and it comes down to how you value certainty against flexibility. Here is how each option actually works, in the same plain language I use with clients.
Choose variable if you want flexibility, an offset account and the ability to make unlimited extra repayments, and you can absorb a rate rise. Choose fixed if repayment certainty matters more than flexibility, for example if your budget is tight or you simply sleep better knowing the number will not change. A split loan lets you have some of each.
How a variable rate works
A variable interest rate moves up and down over the life of your loan, broadly tracking the lender’s funding costs and the Reserve Bank cash rate. When rates fall, your repayments fall (or your loan is paid off faster if you keep repayments the same). When rates rise, your repayments rise.
The trade-off for that uncertainty is flexibility. Variable loans almost always come with an offset account, unlimited extra repayments, and a redraw facility, and they let you refinance or sell without break costs. For most people who want to get ahead on their mortgage, that flexibility is worth a great deal.
How a fixed rate works
A fixed rate locks your interest rate, and therefore your repayment, for a set term, usually one to five years. Whatever happens to the market in that time, your repayment does not change. That certainty is genuinely valuable if you are budgeting to the dollar, starting a family, or simply do not want to think about rate moves.
The catch is flexibility. Fixed loans typically cap how much extra you can repay each year, often do not offer a full offset account, and charge break costs if you repay, refinance or sell before the term ends.
Break costs are not a flat fee. If wholesale rates have fallen since you fixed, breaking a large fixed loan can cost thousands. Always ask for a written break cost quote before you exit a fixed loan.
Fixed vs variable, side by side
| Variable | Fixed | |
|---|---|---|
| Repayment certainty | Changes with the market | Locked for the term |
| Offset account | Usually yes | Often no or partial |
| Extra repayments | Unlimited | Usually capped |
| Exit / refinance | No break costs | Break costs may apply |
| Benefit if rates fall | Yes | No, you stay at your rate |
| Protection if rates rise | No | Yes, for the term |
Split loans: the middle path
You do not have to choose all or nothing. A split loan divides your mortgage into a fixed portion and a variable portion in whatever ratio you like. A common structure is to fix the majority for repayment certainty while keeping a variable slice with an offset account and unlimited extra repayments.
A split will not perfectly optimise either side, but it hedges your bet and is often the most comfortable option for borrowers who genuinely cannot decide.
The revert rate trap
When a fixed term ends, the loan does not stay fixed. Unless you actively fix again, it rolls onto the lender’s standard variable revert rate, which is frequently higher than the sharpest variable rates available. Many people never notice and quietly overpay for months.
Treat the end of any fixed term as a hard deadline to review your loan. This is one of the easiest places to save money, and it costs nothing to check where you stand or to start a refinance.
How to actually decide
Ask yourself three questions. First, how tight is my budget? If a rate rise would genuinely hurt, certainty has real value. Second, how likely am I to make big extra repayments, sell, or refinance in the next few years? If the answer is likely, flexibility matters more. Third, how much is peace of mind worth to me personally? That last one is not a maths question, and it is a perfectly valid reason to fix.
Once you know roughly how much you can borrow and repay, the fixed-versus-variable choice becomes much clearer. Run your numbers on the repayment calculator and borrowing power calculator, or if you are buying your first home, start with the first home buyer guide.
In practice, most clients who want to get ahead on their mortgage lean variable or split, and most who need budget certainty lean fixed or split. There is rarely a wrong answer, only one that fits you better. If you want a second opinion on your specific numbers, that is exactly what a broker is for, and for most home loans the service is free to you.
Common questions
Is a fixed or variable home loan better in Australia right now?
Neither is universally better. A variable rate moves with the market, so you benefit if rates fall and pay more if they rise, and you usually keep features like an offset account and unlimited extra repayments. A fixed rate locks your repayment for a set term, which suits people who value certainty or are budgeting tightly, but it limits extra repayments and charges break costs if you exit early. The right choice depends on your cash flow, how long you will hold the loan, and how much repayment certainty is worth to you.
What are break costs on a fixed home loan?
Break costs are a fee a lender charges if you repay, refinance or switch a fixed loan before the fixed term ends. They are not a penalty; they roughly reflect the lender’s loss if wholesale rates have fallen since you fixed. They can be small or, if rates have moved a lot, several thousand dollars. Always ask your lender for a written break cost quote before you exit a fixed loan.
Can I make extra repayments on a fixed home loan?
Usually only up to a capped amount per year, often around $10,000 to $30,000 depending on the lender, and many fixed loans have no offset account. If getting ahead on your loan matters to you, a variable rate or a split loan generally gives you more freedom.
What is a split home loan?
A split loan divides your mortgage into two portions, one fixed and one variable. For example, you might fix 60 percent for repayment certainty and leave 40 percent variable so you keep an offset and can make unlimited extra repayments on that part. It is a middle path when you cannot decide between the two.
What happens when my fixed rate term ends?
Unless you fix again, the loan automatically rolls onto the lender’s standard variable revert rate, which is often higher than sharper variable rates on the market. This is a common moment to review your loan or refinance, because staying on the revert rate can quietly cost you thousands over a year.
Does a broker charge me to compare fixed and variable options?
For most home loans a broker’s service is free to you, because the lender pays the commission. As a broker I am also bound by a Best Interests Duty, a legal obligation to put your interests first when recommending a loan, which lender staff selling their own product are not held to.
Not sure which way to lean?
Talk it through with a licensed broker. No cost, no pressure, and a Best Interests Duty on your side.