Fixed vs Variable Rate Home Loans
Choosing between a fixed and variable interest rate is one of the most important decisions you'll make when taking out a home loan. Here's what you need to know.
Variable Rate Loans
How They Work
Your interest rate moves in line with the lender's standard variable rate, which is influenced by the RBA cash rate and lender funding costs. When rates go down, your repayments decrease. When rates rise, repayments increase.
Pros
- Benefit from rate cuts
- More flexible — usually allows unlimited extra repayments
- Offset accounts and redraw typically included
- No break costs if you refinance or sell
Cons
- Repayments can increase if rates rise
- Uncertainty makes budgeting harder
Fixed Rate Loans
How They Work
Your rate is locked in for a period — typically 1, 2, 3, or 5 years. During this time, your repayments won't change regardless of what the RBA does.
Pros
- Predictable repayments — great for budgeting
- Protection if rates rise
- Peace of mind
Cons
- Miss out if variable rates fall
- Break costs can be significant if you exit early
- Limited or no extra repayments allowed
- Offset accounts rarely available on fixed rates
Split Loans
A split loan lets you have the best of both worlds by fixing part of your loan and leaving the rest variable. For example, 60% fixed / 40% variable.
Which Should You Choose?
| Situation | Recommendation |
|---|---|
| You want certainty and stability | Consider fixing |
| You expect rates to fall | Consider variable |
| You want to make extra repayments | Variable or split |
| You're in a rising rate environment | Consider fixing |
| You may sell or refinance soon | Variable (no break costs) |
The Current Environment
With the RBA beginning an easing cycle, many economists expect further rate cuts in 2026. This may favour variable loans, though fixed rates have also come down and offer certainty. A Loan Rocket broker can help you assess the right strategy for your circumstances.