Choosing the Right Home Loan: Fixed Rate, Variable Rate or Both?
- Jaeneen Cunningham
- Jun 21
- 6 min read
Updated: Jul 4
Fixed Rate vs Variable Rate Home Loans: Which One is Right for You?
Buying a home is one of the biggest financial decisions you'll ever make, and choosing the right type of home loan is just as important as finding the perfect property. In Australia, the two most common types of home loans are fixed rate and variable rate loans. Understanding the pros and cons of each can help you make an informed decision that suits your lifestyle, goals, and financial situation.
Let’s break down what each loan type means, how they work, when one might be better than the other, and why speaking with a professional mortgage broker can make a huge difference.
What Is a Fixed Rate Home Loan?
A fixed rate home loan means your interest rate is locked in (or “fixed”) for a set period, usually between one and five years. During this time, your loan repayments stay the same, regardless of any changes in the Reserve Bank of Australia’s (RBA) cash rate or market fluctuations.
Pros of Fixed Rate Loans:
Certainty and stability: Your repayments won’t change during the fixed term, which makes budgeting easier and gives you peace of mind.
Protection from interest rate rises: If rates go up during your fixed term, you’re unaffected and continue paying the lower fixed rate.
Ideal for short-to-medium planning: Great for people who want to know exactly what they’re paying for the next few years—such as first home buyers, young families, or those on a fixed income.
Cons of Fixed Rate Loans:
Less flexibility: Most fixed loans don’t allow unlimited extra repayments or offset accounts, which could limit your ability to pay off your loan faster.
Break costs: If you want to refinance, sell, or switch loans before the fixed period ends, you may have to pay hefty break fees.
No benefit if rates fall: If interest rates drop, you’re stuck paying the higher fixed rate.
What Is a Variable Rate Home Loan?
A variable rate home loan means your interest rate can change at any time—up or down—based on movements in the RBA’s cash rate, lender decisions, and broader market conditions. This means your monthly repayments can fluctuate over the life of your loan.
Pros of Variable Rate Loans:
Greater flexibility: You can usually make unlimited extra repayments, access redraw facilities, and use offset accounts to reduce interest.
Potential savings if rates fall: If interest rates drop, so do your repayments—helping you save money over time.
Easier to refinance or switch: There are typically fewer restrictions and lower fees if you want to change loans or lenders.
Cons of Variable Rate Loans:
Uncertainty: Repayments can increase if rates rise, which may make budgeting more difficult.
Market dependency: Your financial planning is more exposed to economic changes, which can be stressful in volatile times.
Can cost more long-term: If rates rise consistently over time, you may end up paying more in interest.
How Do You Choose the Right Home Loan for You?
The decision between a fixed and variable home loan really depends on your financial situation, risk tolerance, and long-term goals. Here are a few questions to ask yourself:
1. Do you value certainty or flexibility?
If you like to plan your budget down to the dollar and want repayment stability, a fixed rate loan might give you that peace of mind. If you want the freedom to make extra repayments or refinance easily, a variable loan could suit you better.
2. Are you concerned about rising interest rates?
If you're worried about rates increasing in the near future and want to lock in a low rate now, fixing might be a good move. But keep in mind: no one can predict the market with certainty.
3. Are you planning to sell, refinance, or make major repayments soon?
If you're thinking of changing your loan or making a big repayment in the next few years, a variable loan may save you
from paying break costs and other restrictions that come with fixed loans.
What About a Split Loan?
Can’t decide? Good news—you don’t have to choose just one!
Many lenders offer split loans, which allow you to divide your home loan into two portions: one fixed and one variable. This gives you the stability of fixed repayments on part of your loan, while still enjoying the flexibility and potential savings of a variable rate on the other portion.
Split loans can be a great option if you're looking for a balanced approach, and they can be tailored in different ratios—such as 50/50, 70/30, or whatever suits your goals.
Real-Life Examples
Case Study 1 – Sarah the PlannerSarah is a first home buyer with a tight monthly budget. She wants to know exactly what her repayments will be each month so she can stay on top of her bills. She chooses a 3-year fixed rate loan, which gives her stability and helps her feel more in control of her finances.
Case Study 2 – Ben the BuilderBen is renovating and plans to sell his home in two years. He chooses a variable loan so he can make large extra repayments without penalty and refinance easily if a better deal comes up.
Case Study 3 – Amanda the OptimiserAmanda wants to pay down her home loan fast but also likes the idea of predictable repayments. Her broker suggests a 60/40 split loan, where she locks in a low fixed rate on part of her loan and keeps the other portion variable. This way, she gets certainty and flexibility.
Why It Pays to Speak to a Mortgage Broker
With so many loan products, interest rates, fees, and features to consider, finding the best home loan can be overwhelming. That’s where an experienced mortgage broker can make a big difference.
Key Benefits of Using a Mortgage Broker:
Expert guidance: Brokers are licensed professionals who understand the lending landscape. They know which lenders are offering the best deals and which products suit different borrowers.
Access to more options: While banks only offer their own products, brokers have access to dozens of lenders—including major banks, credit unions, and non-bank lenders.
Tailored advice: A broker takes the time to understand your financial goals, income, and lifestyle so they can recommend a loan structure that fits your needs—whether it’s fixed, variable, or split.
Saves you time and hassle: Instead of researching, comparing, and applying on your own, a broker handles the paperwork, negotiations, and legwork for you.
They work for you—not the lender: A good broker’s goal is to get the best result for you, not for a bank. They’re your advocate through the entire process.
Ongoing support: A broker can continue to review your loan over time and suggest refinancing or restructuring options if your needs change or better deals become available.
In short, working with a mortgage broker can help you make a more confident, informed decision—and potentially save you thousands over the life of your loan.
Key Takeaways
Fixed rate home loans offer predictability and protection from rate rises but can limit flexibility and come with break fees.
Variable rate home loans offer flexibility and the chance to save when rates drop, but your repayments can go up at any time.
Split loans offer a balanced approach for those who want both certainty and flexibility.
Speaking to an experienced mortgage broker can help you navigate your options and secure a home loan that suits your unique situation.
Final Thoughts
Home loans aren’t one-size-fits-all, and choosing between a fixed or variable rate loan is a big decision. The right loan structure can save you money, reduce financial stress, and support your broader lifestyle goals.
Whether you're buying your first home, upgrading, investing, or refinancing, getting expert advice from a trusted mortgage broker can help you make the smartest move for your future.
If you're unsure where to start or want to review your options, now is the perfect time to speak to a mortgage broker. The right advice at the right time could be the difference between just getting a home loan—and getting the right home loan for you.
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