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Fixed vs variable rates: which is better, and can you have both?
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To fix or not to fix; it’s a question that every home loan borrower will need to answer. So, is a fixed rate or a variable rate home loan better? And is it possible to have both?
The interest you pay on top of your home loan amount is one of the biggest factors affecting the cost of the loan, so it’s understandable you want to choose your interest rate carefully.
Let’s explore the benefits and risks of both home loan interest rate types, which one may better suit a low or high-rate environment, and how you can split your interest rate too.
The benefits of fixed rate home loans
Pros of a fixed rate home loan
- Stability in your budget
- Avoid market fluctuations
Homeowners typically seek out fixed rate home loans for one of two reasons: for stability in their budgeting, and to avoid the impacts of a fluctuating market.
Over a 25 to 30-year home loan term, it’s safe to assume interest rates will fluctuate. By locking in your interest rate for a set period (typically 1-5 years) you can ensure that your rate will not change in that time.
By fixing your interest rate you can avoid the sting of a rate hike, such as if the Reserve Bank of Australia (RBA) raises the cash rate. Plus, mortgage lenders can hike interest rates at any time, out of cycle from the RBA; even fixed rates for new customers.
Fixing your home loan ensures your repayments remain the same, and safe from market changes during the fixed period. This can be a helpful option for those who like to know exactly how much to budget for each mortgage repayment.
It’s worth keeping in mind that if you want to refinance from a fixed rate home loan during the fixed term, you’ll likely need to pay costly break fees for the privilege. Refinancing can sometimes be a much more expensive exercise for fixed rate customers.
When should you consider fixing your home loan rate?
When you want stability in your budget, or when you suspect interest rates may rise. However, this is not a guaranteed way to avoid higher interest.
The benefits of variable rate home loans
Pros of a variable rate home loan
- More likely to come with features
- If rates fall, so should your repayments
A variable rate home loan may be a competitive choice for some homeowners as they are more likely to come with flexible features that could help you better manage your money. Plus, you may find yourself in a better position if the cash rate is cut.
Some fixed home loans do not come with flexible features like an offset account, redraw facility or the ability to make extra repayments. These features can offer serious benefits to some customers, including the ability to chip away at your loan principal faster or reduce your interest charges.
And while a fixed rate may protect you from rate increases, a variable rate may allow you to benefit from cuts to the cash rate. If the RBA were to cut the cash rate and your lender passed this decrease on to you, you should shortly see the effect in the form of lower repayments. Whereas, if you were locked into a higher fixed rate, you may be waiting months, if not years, to see relief in your home loan repayments.
While a variable rate home loan can sometimes feel riskier than a fixed rate, it can offer you benefits, especially if rates fall. It may be worth keeping abreast of interest rate discussions to get a better idea of how the market may move, and plan accordingly.
When should you consider a variable home loan rate?
If you are prioritising features and flexibility (although some fixed rate loans do offer these), if you think rates may fall, or if you aren’t worried about fluctuating interest rates.
Can’t decide between fixed or variable rate? Consider split rate home loans
Sometimes the market is too hard to predict, or you may want the best of both worlds, including fixing your rate and getting access to an offset account. This is where a split rate home loan may come in handy.
As the name suggests, a split rate home loan involves dividing the interest charged on your home loan into a fixed rate portion and a variable rate portion. This does not have to be a 50/50 split. Instead, you could opt for a 65% variable home loan and 35% fixed home loan, for example.
By choosing a split rate home loan you may be able to secure some of your mortgage repayments and protect them from rate fluctuations. And if rates rise, you won’t feel the impact as significantly as if you were on a 100% variable rate loan. Not every home loan offers the ability to split your rate, so be sure to compare your options and check the terms and conditions before applying.
Keep in mind that there is more to a home loan than the interest rate you pay. You want to also ensure you’re comparing fees, features and the benefits offered by that lender as well.
Compare home loans in Australia
5.74%
5.65%
$3,143
Australian Credit Licence 234945
Fees & charges apply
- Promoted
- 2024 Award Winner
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- 20% min deposit
- P&I
5.84%
5.86%
$3,173
Australian Credit Licence 230686
Fees & charges apply
Products issued by ubank, part of NAB
- Promoted
- Special
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- Variable
- 40% min deposit
- P&I
5.79%
5.83%
$3,158
Australian Credit Licence 395219
Fees & charges apply
- Promoted
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- Variable
- 10% min deposit
- P&I
5.74%
5.75%
$3,143
Australian Credit Licence 496431
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- Special
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- Variable
- 10% min deposit
- P&I
6.04%
5.95%
$3,234
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Fees & charges apply
- Promoted
- Special
- Investor
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- 20% min deposit
- P&I
5.69%
5.95%
$3,127
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Fees & charges apply
- Promoted
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- Fixed 3 years
- 10% min deposit
- P&I
6.84%
6.84%
$3,483
Australian Credit Licence 234527
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- Promoted
- Cashback
- Owner Occupied
- Variable
- 10% min deposit
- P&I
6.70%
6.90%
$2,792
Australian Credit Licence 234945
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- Promoted
- Investor
- Variable
- 20% min deposit
- Interest Only
6.95%
6.64%
$2,896
Australian Credit Licence 234945
Fees & charges apply
- Promoted
- Investor
- Variable
- 40% min deposit
- Interest Only
6.49%
7.05%
$2,704
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- Promoted
- Cashback
- Owner Occupied
- Fixed 2 years
- 10% min deposit
- Interest Only
7.21%
7.02%
$3,004
Australian Credit Licence 230686
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Tailored Home Loan
- Owner Occupied
- Variable
- 20% min deposit
- Interest Only
7.54%
7.24%
$3,142
Australian Credit Licence 234527
Fees & charges apply
Standard Variable Loan
- Cashback
- Owner Occupied
- Variable
- 20% min deposit
- Interest Only
Product database updated 26 Mar, 2025
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Promoted home loans
Variable Rate Home Loan LVR < 80%
Real Time Rating™
- 2024 Award Winner
- Special
- Owner Occupied
- Variable
Interest rate p.a.
5.74%
Comparison rate* p.a.
5.65%
Australian Credit Licence 234945
Fees & charges apply
Neat Home Loan
Real Time Rating™
- Special
- Owner Occupied
- Variable
- 40% min deposit
Interest rate p.a.
5.84%
Comparison rate* p.a.
5.86%
Australian Credit Licence 230686
Fees & charges apply
Variable Home Loan
Real Time Rating™
- Owner Occupied
- Variable
- 10% min deposit
- P&I
Interest rate p.a.
5.79%
Comparison rate* p.a.
5.83%
Australian Credit Licence 395219
Fees & charges apply
Live-in Variable Home Loan
Real Time Rating™
- Special
- Owner Occupied
- Variable
- 10% min deposit
Interest rate p.a.
5.74%
Comparison rate* p.a.
5.75%
Australian Credit Licence 496431
Fees & charges apply
Product data updated on 26 Mar 2025
