One of the first big decisions on any home loan is whether to go variable, fixed, or a mix of both. There’s no universally “right” answer — it comes down to your goals, your budget, and how much certainty you want. Here’s how each option works, in plain English.
How a variable rate works
With a variable rate, your interest rate moves up or down over time, largely in line with the Reserve Bank’s cash rate and your lender’s own pricing. When rates fall, your repayments can drop. When they rise, they climb.
Variable loans tend to suit borrowers who want flexibility:
- They usually come with an offset account and unlimited extra repayments, so you can pay the loan down faster.
- They’re cheaper (or free) to refinance or exit if a better deal comes along.
- You benefit straight away when rates fall.
The trade-off is uncertainty — if rates rise, so do your repayments, and budgeting gets harder.
How a fixed rate works
A fixed rate locks your interest rate for a set term, usually one to five years. Your repayments stay the same for that period, no matter what the RBA does.
Fixing tends to suit borrowers who value certainty:
- Repayments are predictable, which makes budgeting simple.
- You’re protected if rates rise during the fixed term.
The trade-offs are real, though:
- Extra repayments are usually capped, and most fixed loans don’t offer a full offset.
- Break costs can be significant if you repay early, sell, or refinance during the fixed term.
- You won’t benefit if rates fall.
Split loans: a bit of both
You don’t have to choose one or the other. A split loan fixes part of your balance and leaves the rest variable — say 50/50. You get some certainty on repayments plus some flexibility to make extra payments and benefit from rate falls. For a lot of our clients, that’s a sensible middle ground.
How to decide
A few questions worth asking yourself:
- Do you need certainty to budget, or can you handle repayments moving around?
- Are you likely to sell, refinance, or make large extra repayments in the next few years? If so, fixing can get expensive.
- Do you want an offset account working against your loan?
Our take
There’s no one-size-fits-all answer — the right call depends on your situation and goals. If certainty and predictable budgeting matter most, fixing (or splitting) can make sense. If flexibility and paying the loan down faster are the priority, variable usually wins. Before you decide, it’s worth reviewing your loan with a broker, and if your current rate is no longer competitive it may be time to refinance.
Jeremy Harper is the director of hfinance. To talk through whether a variable, fixed, or split loan suits you, get in touch.