Home loans

Fixed vs variable home loans: which is better?

A simple comparison of repayment certainty, flexibility and risk in fixed and variable home loans.

Short answer

Neither is automatically better. A fixed rate provides repayment certainty for a set period, while a variable rate can move and usually offers more flexibility. A split loan can combine both when you want partial certainty without fixing the whole balance.

Compare the trade-offs

Fixed loans can make budgeting easier, but may limit extra repayments and can charge break costs if you refinance or repay early. Variable loans may allow offset, redraw and extra repayments, but repayments can rise when rates increase.

Check the revert rate after the fixed period.
Ask about break costs and repayment limits.
Compare fees and features, not only the rate.
Test whether you could handle a variable-rate increase.

Choose around your plans

Consider how long you expect to keep the property, whether you may sell or refinance, how important stable repayments are and whether you will use an offset or make substantial extra repayments.

What happens when a fixed term ends

A fixed rate normally lasts for a limited period, not the full loan term. At expiry, the loan moves to the lender's applicable variable rate unless you select another option. That revert rate may be less competitive than rates offered to new customers. Review the loan before expiry, but do not assume refinancing is always required. Compare the lender's new fixed and variable offers, alternative lenders, switching costs and your circumstances at that time.

Extra repayments and break costs

Many fixed loans limit extra repayments or redraw during the fixed period. Selling, refinancing or repaying more than the permitted amount can trigger an economic break cost, particularly when wholesale rates have fallen since the loan was fixed. The amount changes over time and cannot be estimated reliably from the loan balance alone. Ask the lender for current figures before making a decision. Variable loans are generally more flexible, although their terms and fees still need checking.

How a split loan works

A split loan places part of the debt on a fixed rate and part on a variable rate. The fixed portion can provide some repayment certainty, while the variable portion may hold an offset or accept additional repayments. The split should reflect how much certainty and flexibility you genuinely need. More splits can also mean more administration. Model the combined repayment and check which portion receives offset benefits rather than assuming every linked account offsets the entire loan.

Questions to ask before you proceed

What are the interest rate, comparison rate, ongoing fees and total expected cost?
How do the offset, redraw, extra-repayment and loan-split rules work in practice?
What would the repayment become if rates rose or the selected feature changed?

Key takeaway

Choose the structure that fits your cash flow and likely plans, not a prediction about where rates will go.

Official guidance: Moneysmart: Choosing a home loan

This is general information, not personal financial, tax or legal advice. Lending criteria, fees and eligibility vary.

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