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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 tend to have more competitive interest rates.

There are two types of home loan interest rate, variable and fixed. They work slightly differently:

  • Variable interest rates can change at any time (up or down) and tend to offer slightly lower rates and more repayment flexibility.
  • Fixed interest rates cannot go up (or down) for the fixed period (usually 1-5 years) but often have more fees and less flexibility.

Most Australian borrowers go for variable rate loans. Most of the time, these rates are lower than fixed rates (although in the last few years some fixed rates were lower). And their flexibility is important. Variable rate loans are much more likely to allow you to make extra repayments, letting you get out of debt faster. If you want to exit or refinance a fixed rate loan, you may get hit with some big fees.

But for a borrower who wants to know exactly what their repayments will be and lock in a good deal right now, fixing is definitely a strategy to consider.

Variable versus fixed interest rates: what's the difference?

Fixed ratesVariable rates
  • No change. Your interest rate won't change at all during the fixed period.
  • Changes. Your lender can change your interest rate at any time (up or down).
  • Less to worry about. You can "set and forget" your rate and never have to worry about it changing during the fixed period.
  • Watch your rate. You need to keep an eye on your interest rate and consider switching if it gets too high.
  • Higher fees. Fixed rate loans often have higher exit fees.
  • Lower fees. Competitive variable loans often come with lower fees than their fixed rate equivalents.
  • Refinancing. It's often harder to refinance to another loan during the fixed rate period because of fixed loan break costs.
  • Refinancing. It's easier to refinance a variable rate mortgage.
  • Fewer features. Fixed rate loans are less likely to have offset accounts or redraw facilities.
  • But you don't always need these features.
  • But do you need them? These features can come with a higher rate, so if you don't use them they're not really worth it.
  • Limited extra repayments. Some fixed loans allow extra repayments but these are often limited to a certain amount per year.
  • More flexible. 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.

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.

Which rate type is right for you?

A couple signing a home loan contract.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.

Compare fixed, variable and split rate loans

Compare variable rate loans

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1 - 20 of 35
Name Interest Rate p.a. Comparison Rate p.a. Fees Monthly Payment
Principal & Interest20% min. depositOwner-occupier
Interest Rate
5.99%
Comparison Rate
5.90%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$900
Go to site
Principal & Interest10% min. depositOwner-occupierOffset account
Interest Rate
6.01%
Comparison Rate
6.14%
Fees
Application: $0
Ongoing: $10 per month
Monthly Payment
$902
Go to siteMore Info
Principal & Interest20% min. depositInvestment
Interest Rate
6.29%
Comparison Rate
6.20%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$929
Go to site
Principal & Interest40% min. depositOwner-occupier
Interest Rate
6.15%
Comparison Rate
6.17%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$915
Go to site
Principal & Interest40% min. depositOwner-occupier
Interest Rate
6.14%
Comparison Rate
6.16%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$914
Go to site
Principal & Interest10% min. depositOwner-occupier
Interest Rate
6.04%
Comparison Rate
6.06%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$905
Go to site
Interest only40% min. depositOwner-occupierOffset account$1M+
Interest Rate
6.54%
Comparison Rate
6.64%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$953
Go to site
Principal & Interest10% min. depositOwner-occupierOffset account
Interest Rate
5.99%
Comparison Rate
6.51%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$900
Go to site
Interest only20% min. depositOwner-occupierOffset account$1M+
Interest Rate
6.59%
Comparison Rate
6.66%
Fees
Application: $0
Ongoing: $349 p.a.
Monthly Payment
$958
Go to site
Principal & Interest2% min. depositOwner-occupierNew Purchase - Metro only
Interest Rate
6.30%
Comparison Rate
6.63%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$930
Go to site
Principal & Interest10% min. depositOwner-occupier$750k+
Interest Rate
6.29%
Comparison Rate
6.32%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$929
Go to siteMore Info
Principal & Interest10% min. depositInvestment$750k+
Interest Rate
6.49%
Comparison Rate
6.52%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$948
Go to siteMore Info
Principal & Interest40% min. depositOwner-occupier
Interest Rate
5.99%
Comparison Rate
6%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$900
Go to site
Principal & Interest20% min. depositOwner-occupierOffset account
Interest Rate
6.19%
Comparison Rate
6.44%
Fees
Application: $0
Ongoing: $248 p.a.
Monthly Payment
$919
Go to site
Principal & Interest10% min. depositInvestmentOffset account
Interest Rate
6.19%
Comparison Rate
6.58%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$919
Go to site
Principal & Interest20% min. depositInvestment
Interest Rate
6.45%
Comparison Rate
6.48%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$945
Go to site
Interest only40% min. depositInvestmentOffset account$1M+
Interest Rate
6.54%
Comparison Rate
6.75%
Fees
Application: $0
Ongoing: $349 p.a.
Monthly Payment
$953
Go to site
Principal & Interest20% min. depositOwner-occupier
Interest Rate
6.19%
Comparison Rate
6.21%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$919
Go to site
Interest only20% min. depositInvestmentOffset account$1M+
Interest Rate
6.59%
Comparison Rate
6.77%
Fees
Application: $0
Ongoing: $349 p.a.
Monthly Payment
$958
Go to site
Principal & Interest-10% min. depositOwner-occupierNSW, QLD & ACT only
Interest Rate
5.94%
Comparison Rate
5.95%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$895
Go to site
$2–3,000 cashback
Eligible purchasers and refinancers can get $2,000 or $3,000 cashback when taking out a Greater Bank home loan. Other terms and conditions apply.
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Showing 20 of 35 results

Compare fixed rate loans

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1 - 20 of 36
Name Interest Rate p.a. Comparison Rate p.a. Fees Monthly Payment
Principal & Interest 2Y Fixed5% min. depositOwner-occupier
Interest Rate
5.99%
Comparison Rate
6.24%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$900
Go to site
Principal & Interest 3Y Fixed20% min. depositInvestment
Interest Rate
6.39%
Comparison Rate
6.46%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$939
Go to site
Principal & Interest 3Y Fixed20% min. depositOwner-occupier
Interest Rate
5.99%
Comparison Rate
6.41%
Fees
Application: $0
Ongoing: $250 p.a.
Monthly Payment
$900
Go to site
Principal & Interest 3Y Fixed30% min. depositInvestment
Interest Rate
6.29%
Comparison Rate
6.35%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$929
Go to site
Principal & Interest 2Y Fixed20% min. depositOwner-occupier
Interest Rate
6.09%
Comparison Rate
6.45%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$909
Go to site
Principal & Interest 3Y Fixed30% min. depositOwner-occupier
Interest Rate
5.99%
Comparison Rate
6.13%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$900
Go to site
Principal & Interest 5Y Fixed20% min. depositOwner-occupier
Interest Rate
6.19%
Comparison Rate
6.46%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$919
Go to site
Principal & Interest 3Y Fixed20% min. depositOwner-occupier
Interest Rate
6.09%
Comparison Rate
6.19%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$909
Go to site
Principal & Interest 1Y Fixed20% min. depositOwner-occupier
Interest Rate
6.39%
Comparison Rate
6.49%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$939
Go to site
Principal & Interest 3Y Fixed10% min. depositInvestment
Interest Rate
6.64%
Comparison Rate
8.41%
Fees
Application: $0
Ongoing: $395 p.a.
Monthly Payment
$963
Principal & InterestInterest only 3Y Fixed5% min. depositOwner-occupier
Interest Rate
5.48%
Comparison Rate
6.24%
Fees
Application: $250
Ongoing: $0 p.a.
Monthly Payment
$851
More Info
Principal & Interest 4Y Fixed5% min. depositInvestment
Interest Rate
6.34%
Comparison Rate
6.33%
Fees
Application: $499
Ongoing: $0 p.a.
Monthly Payment
$934
Principal & Interest 3Y Fixed20% min. depositInvestment
Interest Rate
6.69%
Comparison Rate
7.50%
Fees
Application: $0
Ongoing: $10 per month
Monthly Payment
$968
Principal & Interest 4Y Fixed10% min. depositInvestment
Interest Rate
6.79%
Comparison Rate
7.90%
Fees
Application: $0
Ongoing: $395 p.a.
Monthly Payment
$978
Principal & Interest 2Y Fixed30% min. depositInvestment
Interest Rate
6.49%
Comparison Rate
7.99%
Fees
Application: $0
Ongoing: $395 p.a.
Monthly Payment
$948
Principal & Interest 3Y Fixed20% min. depositInvestment
Interest Rate
6.19%
Comparison Rate
6.96%
Fees
Application: $0
Ongoing: $395 p.a.
Monthly Payment
$919
Principal & Interest 4Y Fixed20% min. depositInvestment
Interest Rate
6.79%
Comparison Rate
7.90%
Fees
Application: $0
Ongoing: $395 p.a.
Monthly Payment
$978
Principal & Interest 2Y Fixed20% min. depositOwner-occupier
Interest Rate
6.59%
Comparison Rate
7.64%
Fees
Application: $0
Ongoing: $395 p.a.
Monthly Payment
$958
Principal & Interest 4Y Fixed20% min. depositOwner-occupier
Interest Rate
6.69%
Comparison Rate
7.55%
Fees
Application: $0
Ongoing: $395 p.a.
Monthly Payment
$968
Principal & Interest 2Y Fixed20% min. depositInvestment
Interest Rate
6.59%
Comparison Rate
8.07%
Fees
Application: $0
Ongoing: $395 p.a.
Monthly Payment
$958
$2,000 cashback
Refinancers borrowing $250,000 or more can get a $2,000 cashback (Other terms, conditions and exclusions apply).
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Showing 20 of 36 results

Compare split rate loans

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1 - 6 of 6
Name Interest Rate p.a. Comparison Rate p.a. Fees Monthly Payment
Principal & Interest10% min. depositOwner-occupier
Interest Rate
6.04%
Comparison Rate
6.06%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$905
Go to site
Principal & Interest40% min. depositOwner-occupierOffset account
Interest Rate
6.19%
Comparison Rate
6.43%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$919
Go to site
Principal & Interest40% min. depositOwner-occupier
Interest Rate
6.15%
Comparison Rate
6.17%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$915
Go to site
Principal & Interest 1Y Fixed20% min. depositOwner-occupier
Interest Rate
6.39%
Comparison Rate
6.49%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$939
Go to site
Principal & Interest40% min. depositOwner-occupierOffset account
Interest Rate
6.15%
Comparison Rate
6.40%
Fees
Application: $0
Ongoing: $248 p.a.
Monthly Payment
$915
Go to site
Principal & Interest 5Y Fixed20% min. depositOwner-occupier
Interest Rate
6.19%
Comparison Rate
6.46%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$919
Go to site
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Showing 6 of 6 results

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2 Responses

    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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