Should I apply for a fixed or variable interest rate home loan?

Young couple talking to an advisor.

Find out which interest rate type suits you so you save the most.

Variable rate mortgages are the most popular products in Australia, but fixed rate loans still take up a sizeable chunk of the market. There's no definite answer about which rate is better. It depends on your needs and financial plans. Variable rate loans usually offer lower rates plus more features and flexibility. Fixed rate loans give you greater certainty because your repayments won't change for the fixed period. They tend to have higher fees for exiting or switching and offer less flexibility in how you repay the loan. It's a trade-off between flexibility on the one hand and certainty on the other.

Let's take a greater look at the differences between the two.

The benefits and risks of variable rate loans

The benefits

  • Flexibility and features. Many variable rate loans come with flexible repayment options and don't charge you for making extra repayments. This lets you repay your mortgage faster and without penalty or in ways that suit you better. Variable rate loans are more likely to offer redraw facilities and very useful features like offset accounts.
  • Easier to switch. It's easier to refinance a variable rate loan, so if you're likely to switch mortgages in the future this is something to consider. Some people refinance to get a lower interest rate or unlock more features, while others switch loans when selling a property or turning their residence into an investment property.
  • Lower in fees (generally). Competitive variable loans often come with lower fees than their fixed rate equivalents. This can save you money upfront (application fees), over the course of the loan (ongoing fees) or when refinancing (exit or switching fees).
  • Rates may fall. If the Reserve Bank lowers the cash rate or your lender decides to cut rates in a competitive market, you'll benefit by getting a lower rate. Fixed rate borrowers are locked in and won't see such a benefit until their fixed period ends.

The risks

  • Rates may rise. The biggest risk with a variable rate loan is that your rate can rise at any time. This can catch you by surprise and will result in higher repayments. If you're not prepared this could be a big financial blow and it isn't something you can easily predict.
  • Features you don't need. Not all features are useful ones. If you don't need all the options and flexibility of a variable rate you might be better off with a fixed rate, if you can find one with a reasonably low rate.
  • You need to pay more attention. Potential fluctuations mean variable mortgage holders need to pay more attention to their loan. For time poor homeowners this can be a burden in itself.

The benefits and risks of fixed rate loans

The benefits

  • Rates may rise. If rates start to rise and you've fixed your repayments, you'll come out ahead. This is the biggest potential benefit to fixing your rate, but it is a gamble.
  • Easier to budget. Knowing exactly what your repayments are for one, two or possibly even five years can be very helpful. You won't get caught off-guard by increased repayments and you can organise your finances with more certainty. For some people this is worth paying a little extra.
  • Simplicity. A fixed rate loan is just easier. As long as your rate is set in stone you don't have to worry about it too much.

The risks

  • Rates may fall. No one wants to get stuck with higher repayments while others are getting big discounts.
  • Fewer features. An offset account can help you repay your loan faster while paying less interest. But most fixed mortgages don't offer this feature. Less flexibility is another drawback.
  • Harder to refinance. Fixed rate loans usually have higher exit or switching fees, making refinancing more costly. This means you should calculate the potential savings of refinancing and balance it against the cost of fees.

Watch: fixed and variable rates explained

Split rate loans: the best of both worlds

A split rate home loan is a total loan amount divided into two custom portions; one locked into a fixed rate and the other variable.

If you really like the idea of fixing your interest rate, but you don't want to lose the flexible features available on your variable loan, you can choose to split your home loan.

Compare fixed, variable and split rate loans

Rates last updated August 20th, 2018
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.59%
3.59%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
3.64%
3.66%
$0
$0 p.a.
80%
A simple mortgage with a competitive interest rate and no application or monthly fees. Borrow up to $2 million from a convenient online lender.
3.64%
3.65%
$0
$0 p.a.
80%
Low interest rate and limited fees. Add a 100% offset account for $10 a month.
3.68%
3.70%
$0
$0 p.a.
80%
This loan offers a competitive variable rate and a 100% offset account to help save you on interest repayments.
3.69%
4.11%
$0
$395 p.a.
80%
Unlock a range of savings with this competitive package home loan offer. Offset account and redraw facility included.
3.83%
3.83%
$0
$0 p.a.
90%
New customers can get a discounted variable rate and a fee-free redraw facility. NSW, QLD and ACT residents only.
3.68%
3.82%
$0
$10 monthly ($120 p.a.)
80%
Earn Velocity Frequent Flyer Points with this mortgage to spend on flights and more (subject to eligibility requirements). Redraw facility available on this variable rate home loan. Competitive interest rate.
3.70%
3.70%
$0
$0 p.a.
70%
Get a discount for keeping your LVR at 70% or below with this innovative online lender.
3.64%
3.64%
$0
$0 p.a.
70%
A basic variable home loan that offers a competitive interest rate with no application fees and no ongoing fees.
3.65%
3.66%
$0
$0 p.a.
90%
Competitive interest rate and low fees. Available with a 10% deposit. Partial offset account attached (offset up to $15,000).
3.64%
3.64%
$0
$0 p.a.
70%
A low interest rate home loan with no application or ongoing fees.
3.84%
3.84%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a free redraw facility with this innovative online lender.
3.64%
3.78%
$0
$10 monthly ($120 p.a.)
80%
Earn thousands of Velocity Frequent Flyer Points on your mortgage (subject to eligibility requirements). Plus, access a 100% offset account to save on interest.
3.69%
3.70%
$0
$0 p.a.
90%
Package your loan and get an interest rate discount and help from an HSBC relationship manager. Low fees help you save even more.
3.54%
3.59%
$0
$0 p.a.
80%
Get a competitive rate, save on fees and access a 100% offset account plus redraw facility.
3.64%
3.79%
$0
$10 monthly ($120 p.a.)
70%
Low rate, low fee loan for owner-occupiers. You will need a 30% deposit to get this mortgage.
3.75%
3.75%
$0
$0 p.a.
70%
Pay no application or ongoing fees and get a flexible loan with the ability to split up to 6 times.
3.72%
3.74%
$0
$0 p.a.
80%
Save on interest by taking advantage of a 100% offset account along with no ongoing fees or application fees.
3.72%
4.10%
$0
$395 p.a.
80%
New borrowers or refinancers can get a discounted rate with this package loan. Bonus $1,500 cashback for refinancers.
3.74%
3.74%
$0
$0 p.a.
80%
A basic owner-occupier home loan with a low variable rate that requires a 20% deposit.
3.70%
4.13%
$0
$395 p.a.
90%
Package your loan with an eligible credit card for discounts on rates and fees, and get a 100% offset account.
3.85%
3.85%
$0
$0 p.a.
80%
Pay no application and ongoing fees with Macquarie Bank Basic Home Loan. Split and redraw facilities included.
3.88%
3.89%
$0
$0 p.a.
90%
Save on interest with a free 100% offset account and buy your property with just a 10% deposit.
3.65%
3.66%
$0
$0 p.a.
80%
This special rate mortgage has no ongoing fees and offers flexible repayments. Save $595 in establishment fees before 30 September.
4.04%
4.07%
$0
$0 p.a.
90%
For a limited time, pay no application or settlement fees. You can also take advantage of a free redraw facility.
3.79%
3.79%
$0
$0 p.a.
80%
Access an offset account and pay no application or ongoing fees on this special variable rate for owner-occupiers.
3.67%
3.69%
$0
$0 p.a.
80%
Family guarantee option available. Enjoy flexible repayments and a low minimum loan amount.
3.64%
3.69%
$600
$0 p.a.
80%
A competitive variable rate for borrowers with a 20% deposit or more. Guarantor option available.
3.72%
4.11%
$0
$349 p.a.
90%
Package your loan with other AMP products and save on rates and fees.
3.77%
3.79%
$600
$0 p.a.
90%
Buy your home with just a 10% deposit, few fees and a reasonable interest rate.
3.76%
4.15%
$0
$395 p.a.
90%
A high maximum LVR home loan with redraw facility and additional payments. Get this mortgage with a 10% deposit.
4.09%
4.11%
$0
$0 p.a.
80%
This variable rate loan keeps the features simple and fees low. This loan is offered by a 100% online lender.
3.87%
3.89%
$600
$0 p.a.
95%
A low deposit mortgage for aspiring home owners. Fees are low and you can make extra repayments.
3.91%
3.92%
$0
$0 p.a.
80%
Investors can go from application to approval in as little as 20 minutes with this innovative online lender.
3.99%
3.99%
$0
$0 p.a.
70%
Investors with a 30% deposit can get this low rate loan to fund their property portfolio.
3.59%
3.99%
$600
$395 p.a.
95%
Get interest rate discounts and waived fees on this package loan with a 100% offset account.
4.13%
4.13%
$0
$0 p.a.
80%
A competitive discounted variable rate home loan. 0.33%p.a. Discount Offer for new Owner Occupier Loans.
3.68%
3.69%
$0
$0 p.a.
90%
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.
3.81%
3.81%
$0
$0 p.a.
80%
A home loan with a competitive rate and plenty of handy features. This product comes with a 100% offset account.
3.62%
3.62%
$0
$0 p.a.
95%
A low deposit mortgage with a competitive rate and plenty of flexibility. QLD residents only. Eligible borrowers can get a 15% discount on home and contents insurance for the life of their loan.
3.74%
3.74%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a redraw facility and flexible repayment schedule.
4.29%
4.31%
$0
$0 p.a.
80%
Investors will pay no application or ongoing fees for this interest-only loan.
3.74%
3.74%
$0
$0 p.a.
110%
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, Qld and ACT only.
4.14%
4.17%
$0
$0 p.a.
80%
Investors can enjoy flexible repayment options and pay no application or ongoing fees.
4.65%
5.02%
$0
$395 p.a.
95%
No application fee and 100% offset account. Refinance to this loan and you could get $1,500 cashback.

Compare up to 4 providers

Rates last updated August 20th, 2018
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.89%
3.94%
$0
$0 p.a.
80%
A sharp fixed rate mortgage for home buyers who want to make interest-only payments. Buy your own home and keep your repayments under control for 2 years.
3.59%
4.14%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
3.49%
4.57%
$0
$395 p.a.
90%
Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.88%
4.40%
$0
$395 p.a.
90%
Lock in a very competitive 2 year rate and get package discounts on your credit card and offset account.
3.89%
4.24%
$0
$0 p.a.
80%
Fix your rate and minimise repayments for 2 years with this interest-only investor mortgage.
3.64%
3.79%
$0
$0 p.a.
80%
Apply online for this fixed rate, low-fee loan with redraw facilities and an optional offset account.
3.98%
4.41%
$0
$395 p.a.
90%
Take advantage of a low 3 year fixed rate, 40% offset account and no application fee.
3.99%
4.14%
$0
$0 p.a.
70%
Competitive investor mortgage for borrowers with a 30% deposit.
3.59%
4.74%
$0
$395 p.a.
90%
Enjoy a competitive rate with no application fee for this package loan.
3.74%
4.01%
$395
$0 p.a.
80%
An online home loan offer with a fixed interest offer for 3 years.
3.94%
3.92%
$0
$0 p.a.
80%
Lock in your interest rate for 2 years and enjoy flexibility, an optional offset account and a fast online application process.
3.84%
4.17%
$0
$395 p.a.
80%
Lock in a competitive rate for owner occupiers for two years. Extra repayments up to $30,000 over the life of the fixed period can be made.
3.94%
3.94%
$0
$0 p.a.
90%
Lock in a short interest loan term with a low interest rate.
3.99%
5.35%
$600
$0 p.a.
90%
Competitive rates for fixed for 3 years with redraw facility.
3.99%
4.62%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
3.89%
3.94%
$0
$0 p.a.
90%
Borrow up to 90% of the value of the property you're buying, and pay no application fee.
3.69%
4.38%
$0
$0 p.a.
90%
A discounted 1 year fixed rate if your loan has an LVR under 80% and is more than $150k. NSW, QLD and ACT residents only.
3.69%
4.68%
$0
$395 p.a.
90%
Enjoy a discounted fixed rate and the ability to package the loan with other financial products.
3.69%
4.54%
$0
$395 p.a.
90%
A fixed rate loan with a 100% offset account and the option to make additional repayments. Loans over $150k receive a discounted rate. NSW, QLD and ACT residents only.
4.14%
3.96%
$0
$0 p.a.
80%
Investors can go from application to full approval in as little as 20 minutes with this innovative online lender.
3.99%
4.86%
$0
$0 p.a.
80%
Access a fee-free 100% offset account and pay no application or ongoing fees.
3.84%
4.53%
$0
$395 p.a.
90%
Enjoy discounts on banking products and insurance with this package loan. NSW, QLD and ACT residents only.
4.24%
4.00%
$0
$0 p.a.
80%
Buy an investment property and enjoy the certainty of a 3-year fixed rate with interest-only payments.
4.14%
4.81%
$0
$0 p.a.
80%
Pay no application fees and access a fee-free redraw facility with this fixed rate loan.
4.54%
4.65%
$0
$0 p.a.
90%
4.29%
4.26%
$0
$0 p.a.
95%
A competitive 3-year fixed rate loan with a high max insured LVR.
3.79%
5.04%
$595
$0 p.a.
90%
Investors can take advantage of a short term fixed rate with no application or ongoing fees.
4.04%
3.93%
$0
$0 p.a.
80%
Fix your rate for 1 year and make interest-only payments.
3.62%
4.49%
$0
$0 p.a.
80%
Get a competitive rate and avoid ongoing fees. This loan is only available to current and former employees of eligible Queensland government organisations.
4.33%
4.21%
$0
$0 p.a.
90%
4.36%
4.00%
$0
$0 p.a.
80%
This is a fixed rate loan for owner occupiers with few fees and a fast online approval process. Offset accounts are an optional extra.
4.49%
4.27%
$0
$0 p.a.
90%
Fixed rate loan with a 100% offset account and a 10% deposit option.

Compare up to 4 providers

Rates last updated August 20th, 2018
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.49%
4.57%
$0
$395 p.a.
90%
Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.68%
3.70%
$0
$0 p.a.
80%
This loan offers a competitive variable rate and a 100% offset account to help save you on interest repayments.
3.72%
4.10%
$0
$395 p.a.
80%
New borrowers or refinancers can get a discounted rate with this package loan. Bonus $1,500 cashback for refinancers.
3.83%
3.83%
$0
$0 p.a.
90%
New customers can get a discounted variable rate and a fee-free redraw facility. NSW, QLD and ACT residents only.
3.62%
3.62%
$0
$0 p.a.
95%
A low deposit mortgage with a competitive rate and plenty of flexibility. QLD residents only. Eligible borrowers can get a 15% discount on home and contents insurance for the life of their loan.
3.74%
3.74%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a redraw facility and flexible repayment schedule.
3.88%
3.89%
$0
$0 p.a.
90%
Save on interest with a free 100% offset account and buy your property with just a 10% deposit.
3.89%
4.94%
$595
$0 p.a.
90%
Borrow up to 90% of the value of the property you're buying and pay no application or ongoing fees.

Compare up to 4 providers

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Marc Terrano

Marc Terrano is a content marketer manager at finder. He's been writing and publishing personal finance content for over five years and loves to help Australians get a better deal.

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A competitive interest rate home loan with interest only options. Interest rate 3.64% p.a.
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Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.

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2 Responses

  1. Default Gravatar
    CathNovember 25, 2015

    If we sell our house after 5 years and our loan is variable over 25 years do we have to pay the whole interest owing for total of 25 years or does the bank work out interest owing for 5 years and penalty fees?

    • Default Gravatar
      JodieNovember 25, 2015

      Hi Cath,

      Thank you for reaching out to finder.com.au a financial comparison website.

      If you have been repaying your loan with principal and interest repayments you will only be repaying the remaining principal and interest amount that you owe to the lender, they will not also work out how much interest you would have repaid during the life of your loan.

      You may be able to ask your lender for a payout amount for a specific date to give you an idea of how much you will repay.

      Regards
      Jodie

      Regards
      Jodie

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