Fixed vs Variable Home Loans: What’s the Difference?

The main difference between a fixed and variable home loan is how the interest rate behaves. A fixed rate remains the same for a set period, providing certainty in your repayments, while a variable rate can move up or down based on market conditions and lender decisions.

How fixed and variable rates work

Variable rates: Your interest rate and minimum repayments can change over time. These loans generally offer more flexibility, such as the ability to make unlimited extra repayments and access features like an offset account or redraw facility.

Fixed rates: You lock in an interest rate for a specific term, usually between one and five years. Your repayments will not change during this period, protecting you from rate increases, but you also won't benefit if rates fall. Fixed loans often have restrictions on extra repayments and may incur break costs if you change the loan before the term ends.

Illustrative example

Illustrative example: John has a $500,000 loan. He chooses a 3-year fixed rate at 6.00% p.a. His repayments are set for the next three years, regardless of what the Reserve Bank does. Emma chooses a variable rate, initially at 6.00% p.a. If her lender increases the variable rate to 6.25% p.a. after six months, her minimum repayments will increase accordingly.

What may change the outcome

The total interest you pay over the life of the loan depends on future interest rate movements, how long you keep the loan, and whether you utilise features like an offset account (which is typically only available on variable loans or specific split loan structures).

Common misunderstandings

A common misunderstanding is that a fixed rate is always safer. While it provides repayment certainty, it can be costly if you need to sell the property or refinance during the fixed term, as lenders may charge significant break costs.

When a personal review may help

Deciding between fixed and variable rates depends heavily on your personal cash flow, future plans (such as starting a family or selling the home), and your tolerance for repayment changes. A broker can help you weigh these factors.

Next step

Run an indicative refinance comparison using our Home Loan Repayment Calculator to see how different rates might affect your monthly budget.

This article provides general information only and does not take into account your objectives, financial situation or needs. It does not constitute personal credit, financial, tax or legal advice. Lending outcomes depend on individual circumstances, lender policy and assessment.

Have questions about your situation?

Every home loan scenario is unique. Speak directly with Cameron or Matthew to get clear answers.