Choosing between a fixed and a variable interest rate is one of the first big decisions you make when you take out a home loan — and it is one of the few choices that can cost or save you thousands of dollars over the life of the loan. The short answer: there is no single winner. A fixed rate buys you certainty, a variable rate buys you flexibility, and the right pick depends on your budget, your plans, and how much risk you can live with.
Quick verdict: If you need your repayments to stay exactly the same for the next few years — a tight budget, a single income, a new baby on the way — fixing some or all of your loan is usually the safer choice. If you want an offset account, plan to make extra repayments, or might refinance or sell within a few years, a variable rate usually works out better. If you want a bit of both, a split loan is the middle ground. Moneysmart, the government’s money guide, explains the trade-offs plainly in its fixed vs variable home loan guide.
What Is a Fixed Rate Home Loan?
A fixed rate home loan locks your interest rate for a set period, usually between one and five years. During that time your repayments do not change at all, no matter what the Reserve Bank of Australia does with the cash rate. That certainty is the whole point of fixing: you know exactly what leaves your bank account each month.
The trade-off is flexibility. Most fixed rate loans limit extra repayments — often to $10,000 to $20,000 a year — and most do not offer a full offset account. And if you sell, refinance, or pay the loan off during the fixed term, the lender can charge break costs, which can run into thousands or even tens of thousands of dollars depending on how far rates have moved since you fixed.
There is one more catch worth knowing: when the fixed term ends, your loan automatically rolls onto the lender’s standard variable rate — the “revert rate” — unless you fix again or switch loans. That revert rate is often 0.5% to 1.5% higher than the sharp rates on offer to new borrowers, so the end of a fixed term is a good moment to review your loan.
What Is a Variable Rate Home Loan?
A variable rate home loan has an interest rate that can change at any time. In practice, lenders usually move variable rates in response to RBA cash rate decisions — the cash rate was lifted to 4.85% at the RBA’s November 2026 meeting — but they are not obliged to pass changes on in full, or at all.
What you give up in certainty, you gain in flexibility. Variable loans typically let you make unlimited extra repayments, use a full 100% offset account and a redraw facility, and refinance or sell without break costs. If rates fall, your repayments fall too. The risk runs the other way as well: if rates rise, so do your repayments, and a tight budget can get squeezed fast.
Fixed vs Variable: Side by Side
| Feature | Fixed rate | Variable rate |
|---|---|---|
| Repayments | Stay the same for 1–5 years | Can rise or fall at any time |
| Rate certainty | Yes, locked for the fixed term | No |
| Offset account | Usually not available | Full 100% offset usually available |
| Extra repayments | Capped, often $10,000–$20,000 a year | Usually unlimited |
| Redraw facility | Often limited or unavailable | Usually available |
| Break costs | Yes, can be large | No |
| Refinancing or selling | Costly during the fixed term | Free to move at any time |
| What happens at the end | Rolls onto the lender’s revert rate | Continues as a variable rate |
What Does Each Option Actually Cost?
Rates change daily, so treat these as a snapshot, not a quote. As at 6 November 2026, the lowest variable rates on the market were around 5.89% to 5.94% p.a., and the lowest fixed rates were around 6.09% to 6.39% p.a. for one to three year terms. The average rate on new variable loans was about 6.23% p.a., and the average on new fixed loans up to three years was about 6.26% p.a. — so right now, fixed and variable rates are sitting very close together.
To see what that means in dollars, take a $600,000 loan over 25 years with principal and interest repayments:
- At 6.13% p.a. (a sharp variable rate): about $3,914 a month
- At 6.39% p.a. (a sharp two-year fixed rate): about $4,010 a month
That is a difference of roughly $96 a month, or about $1,150 a year. It is real money, but it is small next to the cost of getting the choice wrong. A single 0.25% rise in a variable rate would add about $93 a month to the same loan — so a borrower on a variable rate who sees two rate rises in a year is suddenly paying more than the borrower who fixed.
Always compare the comparison rate, not just the headline rate. The comparison rate folds in most fees and is calculated on a $150,000 loan over 25 years, so it is the fairest way to compare two loans side by side. And remember that a low fixed rate with a high comparison rate can be a worse deal than it first looks.
Break Costs: The Expensive Surprise
Break costs are the biggest hidden risk of fixing. If you exit a fixed rate loan early — because you sell, refinance, or pay it off — the lender charges you for the interest it expected to earn. The fee is not a flat amount. It is calculated from how far wholesale rates have moved since you fixed, and on a large loan with years left on the term it can reach $15,000 to $18,000 or more.
That is why fixing only makes sense when you are fairly sure you will stay put for the full term. If there is a real chance you will move house, refinance, or come into money you want to tip into the loan within the next few years, the break cost risk usually outweighs the certainty.
The Split Loan: A Bit of Both
A split loan divides your mortgage into two parts: one part fixed, one part variable. A common split is 60% to 70% fixed and 30% to 40% variable, but you can choose any proportion. The fixed part gives you repayment certainty on most of your debt, while the variable part keeps an offset account and the freedom to make extra repayments.
A split loan is a sensible middle ground if you like the idea of certainty but do not want to give up your offset account entirely. Just check the details before you sign: the offset usually only applies to the variable portion, and break costs still apply to the fixed portion.
Which Is Better for You?
A fixed rate is usually better if: your budget is tight and a rate rise of 0.50% would genuinely stress your finances; you are on a single income or expecting a drop in income; you value knowing exactly what your repayments will be for the next few years; or you are confident you will not sell or refinance during the fixed term.
A variable rate is usually better if: you keep savings in an offset account and want every dollar working against your loan; you plan to make large extra repayments; you might sell, refinance, or move within the next few years; or you believe rates are more likely to fall than rise and you want to benefit if they do. If you want to get the most out of a variable loan, it helps to understand how an offset account works, and how it compares with a redraw facility.
A split loan is usually better if: you want some certainty but do not want to lose your offset account, or you and your partner disagree about which way rates are heading.
One honest warning: nobody can reliably predict where rates will go next, and your lender’s fixed rates already have the market’s best guess baked in. Fixing because you think you can outsmart the market is a gamble, not a strategy. Fix because you need the certainty — that is a decision you can stand behind whatever rates do.
How to Decide in 5 Steps
- Stress-test your budget. Work out what your repayments would be if your variable rate rose by 0.50% or 1.00%. If that number scares you, fixing deserves serious thought.
- Check your plans. Will you stay in this home for the full fixed term? If not, a variable rate or a split loan is usually safer.
- Count your offset savings. If you keep a healthy balance in savings, a variable rate with a full offset account may save you more than a slightly lower fixed rate. Our guide on how to pay off your mortgage faster shows how the numbers work.
- Compare comparison rates, not headline rates. Fees and revert rates matter as much as the rate itself.
- Put a date in your diary. If you fix, note the date the term ends. That is the day to renegotiate or refinance — do not drift onto the revert rate.
Frequently Asked Questions
Is it better to fix your home loan now?
It depends on your situation, not on a rate forecast. Fixing is better if you need repayment certainty and plan to stay put for the full term. It is not better as a bet on where rates are going — fixed rates already reflect what the market expects.
What happens when a fixed rate ends?
Your loan automatically moves to the lender’s standard variable rate, known as the revert rate, unless you agree to another fixed term or switch loans. Revert rates are often 0.50% to 1.50% higher than the sharp rates on offer, so review your loan before the term ends.
Can you have a fixed rate with an offset account?
Most fixed rate loans do not offer a full 100% offset account. Some offer a partial offset, and a split loan keeps an offset on the variable portion. Check the product details before you sign.
Can you make extra repayments on a fixed rate loan?
Usually yes, but only up to a cap — commonly $10,000 to $20,000 a year. Paying more than the cap during the fixed term can trigger break costs.
Is a split home loan worth it?
For many borrowers, yes. A split loan gives you repayment certainty on part of your loan while keeping an offset account and extra repayment freedom on the rest. It is a good middle ground if you want some of each.
This article is general information only and is not financial advice. Home loan rates and features change often, so check the current rates and terms with the lender before making a decision, and consider speaking with a licensed mortgage broker or financial adviser about your own situation.
