Fixed or variable home loan: how to compare the options
Compare fixed and variable home loans in Australia, including repayment certainty, flexibility, break costs, offset accounts and split-loan options.
- Fixed or variable home loan: how to compare the options
Choosing between a fixed and variable home loan is not simply a prediction about whether interest rates will rise or fall.
It is also a decision about repayment certainty, flexibility, features and the restrictions you are prepared to accept.
What is a variable home loan?
A variable home loan has an interest rate that can change.
The lender may change its variable rate following movements in the RBA cash rate, funding costs, market competition, risk settings or its own pricing decisions.
Potential advantages include:
- additional repayment flexibility
- redraw
- access to an offset account
- easier refinancing
- no fixed-rate break cost.
Possible disadvantages include:
- repayments may rise
- budgeting is less certain
- the lender can change the rate independently of the RBA.
What is a fixed home loan?
A fixed home loan generally locks in an interest rate for an agreed period.
Potential advantages include:
- greater repayment certainty
- protection from rate increases during the fixed period
- simpler short-term budgeting.
Possible disadvantages include:
- limited additional repayments
- restricted redraw or offset
- break costs if the loan is repaid or changed early
- no benefit from variable-rate reductions during the fixed period
- uncertainty about the rate that will apply when the fixed term ends.
What are fixed-rate break costs?
A fixed-rate break cost may arise when a borrower:
- refinances
- sells the property
- repays more than the permitted amount
- changes the loan
- pays out the fixed loan before the agreed expiry date.
The cost depends on the lender’s calculation and market conditions. It can sometimes be substantial.
Request an up-to-date break-cost estimate before selling, refinancing or making a large repayment.
What happens when the fixed period ends?
When a fixed period expires, the loan generally moves to a variable rate unless a new arrangement is made.
The new rate may be higher or lower than the fixed rate. Review the loan before expiry rather than allowing it to roll over without checking the available options.
Can you split the loan?
A split loan divides the mortgage into fixed and variable portions.
This can provide:
- some repayment certainty
- some access to variable features
- the ability to make additional repayments into the variable portion
- reduced exposure to a single rate structure.
A split loan does not remove rate risk. It divides the risk and may involve multiple accounts or fees.
Questions to consider
Ask yourself:
- How important is certainty?
- Could I afford higher repayments?
- Am I planning to sell or refinance?
- Do I expect to make large additional repayments?
- Do I need a full offset account?
- Is my income stable?
- What happens after the fixed period?
- Would splitting the loan better suit my position?
Avoid trying to perfectly time the market
Even professional forecasts can change as inflation, employment and global conditions develop.
The RBA cash rate influences borrowing costs, but lenders retain control over their own home loan pricing.
The better decision is usually the structure that remains manageable across a reasonable range of possible outcomes.
Compare fixed, variable and split options
Call to action: Ask a finweb mortgage broker to compare fixed, variable and split-loan structures, including repayments, features and potential restrictions.
*General information only. Interest-rate movements cannot be predicted with certainty. Fixed-rate loans may involve significant break costs.*