Fixed vs Variable: Which Home Loan Rate Fits You?

One of the first decisions you'll face when arranging a home loan is whether to fix your rate, keep it variable, or split the loan between the two. There's no universally correct answer, but understanding how each works makes the decision much easier.

How a variable rate works

A variable rate moves up or down over the life of the loan, generally in line with the lender's own pricing decisions and broader interest rate conditions. Variable loans typically offer more flexibility, such as the ability to make extra repayments without limit, and access to features like an offset account or redraw facility.

How a fixed rate works

A fixed rate locks in your interest rate for an agreed period, commonly one to five years, giving you certainty over your repayments for that time. The trade-off is usually less flexibility. Many fixed loans limit extra repayments, and breaking a fixed rate early can trigger a break cost, which can be significant depending on how rates have moved since you fixed.

Why some borrowers split the loan

A split loan lets you fix part of the balance while keeping the rest variable. This can suit borrowers who want some repayment certainty but still want the flexibility of extra repayments or an offset account on part of their loan. The right split depends on your income stability, how much of a buffer you want, and your view on where rates are headed.

Questions worth asking before you decide

• How likely am I to want to make large extra repayments during the fixed period?
• Do I value repayment certainty more than flexibility right now?
• Am I comfortable with repayments moving if I choose variable?
• Is there a realistic chance I'll sell or refinance before a fixed term ends?

There's no single right answer

Fixed and variable rates suit different people at different stages of life, and the right choice depends on your income, your plans, and how much certainty you want. Rather than guessing, it's worth talking through your specific situation before you lock anything in.