Choosing between a fixed and variable home loan rate is one of the most important decisions you will make when taking out a mortgage. A fixed rate locks your interest rate for a set period, giving you certainty over repayments. A variable rate moves with the market, offering more flexibility and features. The right choice depends on your financial goals, risk tolerance, and how long you plan to hold the loan.
A fixed rate home loan is one where the interest rate is set for an agreed term, typically one to five years, regardless of market movements. A variable rate home loan is one where the interest rate can change at any time based on the lender's pricing decisions, which generally follow the Reserve Bank of Australia (RBA) cash rate.
A fixed rate home loan locks your interest rate for a nominated period, most commonly one, two, three, or five years. During that fixed term, your repayments stay exactly the same regardless of what the RBA does with the cash rate or what other lenders charge.
At the end of the fixed term, your loan rolls onto the lender's standard variable rate unless you negotiate a new fixed rate or refinance elsewhere.
A variable rate home loan has an interest rate that can change at any time. Lenders set their variable rates independently, but they broadly follow the RBA cash rate. When the RBA cuts rates, variable borrowers typically see lower repayments. When the RBA raises rates, repayments increase.
| Feature | Fixed Rate | Variable Rate |
|---|---|---|
| Rate certainty | Yes, for the fixed term | No, can change at any time |
| Repayment stability | High | Low to medium |
| Extra repayments | Usually capped or prohibited | Unlimited |
| Offset account | Rarely available | Standard on most products |
| Redraw facility | Rarely available | Standard on most products |
| Break costs | Yes, can be significant | No |
| Refinancing flexibility | Limited during fixed term | Any time |
| Benefits from rate cuts | No | Yes |
| Protection from rate rises | Yes | No |
| Best for | Budget certainty, rate-rise environment | Flexibility, falling rate environment |
A split loan divides your mortgage into two portions: one fixed and one variable. For example, you might fix 60% of your loan at a set rate for three years and keep the remaining 40% on a variable rate.
This gives you:
Split loans are popular with borrowers who want a middle ground and are not confident picking a direction on rates. Your broker can suggest a split ratio based on your cash flow and financial goals.
Work through these questions to guide your decision:
There is no universally correct answer. What matters is matching the loan structure to your personal situation, not chasing the lowest headline rate.
When your fixed term ends, your loan automatically rolls onto the lender's standard variable rate, which is often higher than their discounted variable rate. This is sometimes called the revert rate, and it can be significantly above what you would pay if you negotiated a new rate or refinanced.
At Gateway Finance, we monitor client loan rollover dates and reach out before your fixed term expires so you are never caught on a revert rate without a plan.
Steps to take when your fixed term is ending:
Not necessarily. Whether fixing saves money compared to staying variable depends entirely on what rates do during your fixed term.
If rates rise after you fix, you save money relative to a variable borrower. If rates fall, you pay more than a variable borrower for the same period. Over a full loan term, research consistently shows that variable rate borrowers tend to pay less total interest than fixed rate borrowers, but fixed borrowers gain certainty and peace of mind in exchange.
The decision is not purely financial. The value of knowing exactly what you will pay each month is real, particularly for households managing a tight budget or a single income.
Yes, but you will likely pay break costs. These are calculated based on the difference between your fixed rate and the current wholesale rate for the remaining term, multiplied by your loan balance. Break costs can be very high in a falling rate environment. Ask your lender for a break cost estimate before making any decisions.
Most lenders allow limited extra repayments on fixed loans, typically up to $10,000 per year without penalty. Amounts above this threshold may trigger fees. Check your loan contract for the specific limit, or ask your broker before fixing.
Not always. Fixed and variable rates move independently of each other. At times, fixed rates are lower than variable rates, particularly in a rate-rising environment where lenders price in future increases. Your broker will compare live rates across both structures when advising you.
A comparison rate combines the interest rate with most fees and charges into a single annual percentage figure, making it easier to compare the true cost of different loans. Always look at the comparison rate alongside the headline rate. A low headline rate with high fees can be more expensive than a slightly higher headline rate with no fees.
This depends on your outlook and flexibility needs. A one to two year fixed term suits borrowers who want short-term certainty and plan to reassess. A three to five year term suits those who want longer stability and are confident they will not need to sell or refinance during that period.
The revert rate is the standard variable rate your loan rolls onto when the fixed term ends. It is often higher than discounted variable rates. Avoid it by monitoring your fixed term expiry date and contacting your broker at least 90 days before it ends to compare your options.
Rates, lender policies, and your personal circumstances all factor into this decision. At Gateway Finance, we model both fixed and variable scenarios for your actual loan size across 28+ lenders so you can make an informed choice, not a guess.
General information only. This article does not constitute financial advice. Interest rate comparisons are for illustrative purposes only. Your personal circumstances will determine which loan structure is suitable for you. Australian Credit Licence 518395.
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