Fixed vs Variable Rate: Which Is Right for You?

One of the most common questions home buyers ask is whether to go with a fixed or variable interest rate. Both have their advantages and drawbacks, and the right choice depends on your individual circumstances.

Variable Rate Loans

A variable rate moves up and down with the market. When the Reserve Bank changes the cash rate, your lender may adjust your interest rate accordingly.

Pros

• Rates can go down, reducing your repayments
• More flexibility — extra repayments, offset accounts, redraw facilities
• No break costs if you refinance or pay off early

Cons

• Rates can go up, increasing your repayments
• Harder to budget when repayments can change

Fixed Rate Loans

A fixed rate locks in your interest rate for a set period, usually 1–5 years. Your repayments stay the same regardless of market movements.

Pros

• Certainty — you know exactly what your repayments will be
• Protection against rate rises during the fixed period
• Easier to budget

Cons

• You miss out if rates drop
• Less flexibility — limited extra repayments, no offset
• Break costs if you exit the fixed period early

Split Loans: The Best of Both

A split loan divides your mortgage into a fixed portion and a variable portion. This gives you the certainty of fixed repayments on part of your loan while still benefiting from the flexibility of variable on the rest.

Example: On a $500,000 loan, you might fix $300,000 for 3 years and keep $200,000 variable with an offset account.

Which Should You Choose?

There's no one-size-fits-all answer. Consider your risk tolerance, financial goals, and whether you value certainty or flexibility. A mortgage broker can model different scenarios to help you decide.