Fixed versus variable home loan: Which is right for you?

Fixed rates offer more certainty because repayments don't change. But you can repay a variable rate faster and these loans usually have lower interest rates.

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Richard Whitten

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Key takeaways

  • Variable home loans often offer lower rates, greater flexibility and easier refinancing options.
  • Fixed rates provide repayment certainty but typically have fewer features and higher exit fees.
  • Consider a split loan to combine the certainty of fixed with variable rate flexibility.

What's the difference between fixed and variable interest rates?

In short, variable rates are those that can move up or down during the life of your home loan. This usually happens when the Reserve Bank of Australia (RBA) changes the national cash rate.

Fixed rates stay the same for a chosen fixed period (usually 1 - 5 years). Although this means your interest rate won't be affected when rates are rising, they also won't go down when rates are falling.

Let's take a deeper dive:

Variable

  • Lower fees. Competitive variable loans often come with lower fees than their fixed rate equivalents.
  • Refinancing. It's easier to refinance a variable rate mortgage.
  • More features. Variable rate loans are more likely to offer redraw facilities and very useful features like offset accounts.
  • More flexible. Many variable rate loans come with flexible repayment options and let you make extra repayments.
  • Changes. Your lender can change your interest rate at any time (up or down).
  • Watch your rate. You need to keep an eye on your interest rate and consider switching if it gets too high.

Fixed

  • No change. Your interest rate won't change at all during the fixed period.
  • Less to worry about. You can "set and forget" your rate and never have to worry about it changing during the fixed period.
  • Higher fees. Fixed rate loans often have higher exit fees.
  • Refinancing. It's often harder to refinance to another loan during the fixed rate period because of fixed loan break costs.
  • Fewer features. Fixed rate loans are less likely to have offset accounts or redraw facilities.

Did you know?

When the fixed period on a home loan ends, it reverts to a variable rate. As most home loans have 30-year terms, even if you do fix your rate for a few years, most of your loan will end up being variable anyway.
Sarah Megginson's headshot

"I locked in my home loan at 1.98% for 3 years in December 2021, which means I benefitted from three years of super low rates. A month after we locked it in, rates when up to 2.59% and by the time the fixed rate ended late 2024, it was at 6.59%! The situation has changed a lot now, and I wouldn't fix again while we're in a rate drop environment. But we were very lucky with the timing, and saved tens of thousands of dollars."

Money expert + media spokesperson

Is a fixed rate or variable rate right for you?

The real question is what do you want from your home loan. This helps you decide which rate type suits you best.

Here are some examples to help you think about your own situation.

  • I want to know exactly what my repayments are each month. You might want to go with a fixed rate loan. With the certainty of an unchanging rate you can budget safe in the knowledge that your repayments won't vary. This means you can basically forget about your home loan for the fixed period.
  • I want the lowest possible rate and I'm happy to switch lenders. Go with a variable loan (probably). Variable rates are usually more competitive than fixed rates, although that's not always the case. But if you're a deal hunter who's always after a lower rate and is happy to compare and refinance regularly, then a variable mortgage probably gives you more options and is easier to refinance.
  • I want to repay my loan as quickly as possible. In this case you want the lowest interest rate and a mortgage which allows for extra repayments. This is more likely a variable rate but some fixed rate loans allow extra repayments too.
  • I may need to refinance my loan soon or sell my property. If you think you're likely to exit a home loan soon, either by repaying it, selling the house or refinancing for some other reason, you probably want a variable rate loan. This is because a fixed rate loan has break costs that can run to thousands of dollars.

If you still can't decide which rate type is right for you, there's a third option.

The third option: Split rates

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.

A split rate home loan is when you divide your loan into two (or more) portions; one locked into a fixed rate and the other variable.

This lets you enjoy some of the advantages of both rate types at the same time.

Fixed? Variable? Split?

Can't decide? Compare all your rate options in one place.

Compare now

The lowest fixed and variable interest rates

The lowest fixed and variable interest rates
MonthVariable (owner-occupier)Fixed (owner-occupier)
Mar-20183.44%3.74%
Apr-20183.52%3.74%
May-20183.49%3.69%
Jun-20183.52%3.69%
Jul-20183.49%3.69%
Aug-20183.54%3.74%
Sep-20183.49%3.74%
Oct-20183.54%3.74%
Nov-20183.54%3.74%
Dec-20183.49%3.69%
Jan-20193.49%3.74%
Feb-20193.49%3.74%
Mar-20193.49%3.74%
Apr-20193.48%3.74%
May-20193.48%3.59%
Jun-20193.24%3.39%
Jul-20192.89%3.19%
Aug-20192.89%2.98%
Sep-20192.89%2.74%
Oct-20192.69%2.74%
Nov-20192.69%2.68%
Dec-20192.69%2.68%
Jan-20202.69%2.68%
Feb-20202.69%2.68%
Mar-20202.49%2.68%
Apr-20202.44%2.09%
May-20202.39%2.09%
Jun-20202.39%2.09%
Jul-20202.19%1.99%
Aug-20201.99%1.99%
Sep-20201.99%1.98%
Oct-20201.99%1.90%
Nov-20201.99%1.90%
Dec-20201.99%1.89%
Jan-20211.99%1.88%
Feb-20211.99%1.88%
Mar-20211.99%1.66%
Apr-20211.99%1.69%
May-20211.95%1.69%
Jun-20211.90%1.67%
Jul-20211.89%1.67%
Aug-20211.89%1.69%
Sep-20211.85%1.69%
Oct-20211.85%1.59%
Nov-20211.85%1.59%
Dec-20211.77%1.59%
Jan-20221.85%1.79%
Feb-20221.77%1.79%
March-20221.77%1.84%
April-20221.70%1.84%
May-20221.79%1.84%
June-20222.04%2.09%
July-20222.44%2.59%
Aug-20223.05%3.59%
Sept-20223.14%3.99%
Oct-20223.44%4.19%
Nov-20223.54%4.49%
Dec-20224.29%4.60%
Jan-20234.29%4.64%
Feb-20234.39%4.94%
Mar-20234.64%4.99%
Apr-20234.64%4.99%
May-20234.64%4.99%
Jun-20235.34%5.24%
Jul-20235.39%5.23%
Aug-20235.39%5.23%
Sep-20235.39%5.48%
Oct-20235.39%5.48%
Nov-20235.59%5.48%
Dec-20235.74%5.48%
Jan-20245.69%5.48%
Feb-20245.69%5.48%
Mar-20245.69%5.48%
Apr-20245.69%5.48%
May-20245.69%5.48%
Jun-20245.69%5.48%
Jul-20245.69%5.48%
Aug-20245.69%5.59%
Sep-20245.69%5.59%
Oct-20245.69%4.99%
Nov-20245.69%4.99%
Dec-20245.69%4.99%
Jan-20255.69%4.99%
Feb-20255.38%4.99%
Mar-20255.44%4.99%
Apr-20255.64%4.99%
May-20255.59%4.99%
Jun-20255.34%4.99%
Jul-20255.34%4.99%
Aug-20255.34%4.94%
Sep-20255.09%4.64%
Oct-20254.99%4.64%
Nov-20254.99%4.64%
Dec-20254.99%4.64%
Jan-20264.99%4.79%
Feb-20264.99%4.94%
Mar-20265.10%5.20%
Apr-20265.19%5.49%
May-20265.35%5.70%
Jun-20265.69%5.99%
Jul-20265.14%5.99%
Aug-20265.69%5.99%
Source: Finder's database

Is now a good time to fix?

There's really no good or bad time to fix your home loan rate. It depends on your goal and it's hard to time when rates might start moving.

Fixing interest rates worked well for borrowers in 2020 and 2021 when some interest rates were below 2%. Fixing then meant they were in a stable position at a time when there was so much uncertainty.

It also put them in a great position for when interest rates began rising in 2022.

But over the last few years, interest rate movements have been particularly unpredictable for the long-term.

Fixing your home loan rate now should be to lock in repayments you know you're comfortable with, rather than worrying about being on the lowest rate.

Frequently asked questions about choosing between a fixed or variable interest rate

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Senior Money Editor
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Richard Whitten is Finder’s Senior Money Editor, with over eight years of experience in home loans, property, credit cards and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard started his career in education and textbook publishing in South Korea. He holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Bachelor of Education from the University of Sydney and a Graduate Certificate in Communications from Deakin University. See full bio

Richard's expertise
Richard has written 765 Finder guides across topics including:
  • Home loans
  • Credit cards
  • Personal finance
  • Money-saving tips
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2 Responses

    Cath's avatar
    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?

      Jodie Humphries's avatar
      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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