Key takeaways
- A fixed rate locks your repayments for a set period, usually one to five years, but can cost you break fees and features.
- A variable rate can rise or fall at any time, and usually comes with offset, redraw and free extra repayments.
- A split loan fixes part of the balance and leaves the rest variable, so a rate rise only hits part of your repayment.
- When a fixed period ends, the loan usually moves to the lender’s revert rate. Plan for it a few months ahead.
- The right choice depends on how much certainty your budget needs and how much flexibility you’ll use.
Choosing a fixed or variable home loan is really a choice between certainty and flexibility. A fixed rate locks in your repayments for a few years. A variable rate moves with the market but usually lets you use an offset account and pay extra whenever you like. A split loan gives you some of each. Here’s how each option works, what it can cost, and how to decide.
How a fixed rate home loan works
A fixed rate stays the same for a set period, usually between one and five years. Your repayments won’t change during that time, even if market rates rise or fall. When the period ends, the loan normally moves to the lender’s variable rate (the revert rate) unless you fix again or switch loans.
The trade-offs: you don’t benefit if rates fall, you may pay a break cost if you refinance, sell or repay early, and fixed loans often come with fewer features, such as limited extra repayments and no offset account.
How a variable rate home loan works
A variable rate can go up or down at any time, and your lender decides when and by how much. Changes to the Reserve Bank’s cash rate influence variable rates, but lenders can move for other reasons too. In 2026 the RBA raised the cash rate three times, in February, March and May, taking it to 4.35%.
In return for that uncertainty, variable loans are usually easier to refinance and often let you make extra repayments without fees, redraw them, and link an offset account.
Fixed vs variable at a glance
| Fixed rate | Variable rate | |
|---|---|---|
| Repayments | Stay the same for the fixed period | Can rise or fall |
| If rates rise | You’re protected until the period ends | Repayments go up |
| If rates fall | You don’t benefit | Repayments can go down |
| Extra repayments | May be capped or not allowed | Usually allowed, often free |
| Offset and redraw | Often not available | Often available |
| Refinancing or selling early | Break costs may apply | Usually easier; discharge fees may apply |
| When the period ends | Moves to the revert rate | Continues as variable |
Split loans: some of both
A split loan divides your borrowing into two parts: one fixed and one variable. You choose the proportions with the lender, such as 50/50 or 70/30. The fixed part gives you certainty, and the variable part keeps your flexibility for extra repayments and an offset.
Hypothetical example
A $700,000 loan over 30 years:
- All variable at 6.20%: repayments of about $4,287 a month. If the rate rose by 1%, they’d rise by about $464 a month.
- Split 50/50, fixed at 6.00% and variable at 6.20%: about $4,242 a month in total. The same 1% rise on the variable half adds about $232 a month; the fixed half doesn’t move until its period ends.
Rates here are for illustration only. Split loans can have different fees and conditions on each part, so compare the total cost, not just the two rates.
Not sure how to split your loan?
Phillip can model fixed, variable and split options side by side with your numbers and your budget.
Break costs: the catch with fixing
When you fix, the lender arranges its own funding for that period. If you end the arrangement early, it may charge a break cost to cover its loss. That can happen when you refinance, sell, switch to variable, or repay more than the fixed loan allows.
Break costs usually depend on how far the lender’s fixed-rate funding costs have fallen since you fixed, how much you owe and how long is left. If rates have risen since you fixed, the cost may be small or nothing. If they have fallen, it can be thousands of dollars.
What happens when the fixed period ends
Your loan will usually roll onto the lender’s revert rate, which can be higher than the rates it offers new customers. A couple of months before the end date, ask your lender what rate will apply, then compare it with the market. You can fix again, move to variable, ask for a better rate, or refinance to another lender.
If you refinance, the new lender will test whether you can afford the loan at its rate plus a buffer. APRA requires banks to add at least 3 percentage points. If your income has fallen or your debts have grown since you fixed, start planning early. Our complete guide to refinancing walks through the steps.
Buying and want to fix now? A rate lock can hold a fixed rate between approval and settlement, for a fee.
How to choose between fixed and variable
Work through these questions honestly:
- Could your budget absorb higher repayments? Moneysmart suggests testing a rate 3% higher than today’s.
- Do you expect extra money, such as bonuses or a tax refund, that you’d want to put on the loan?
- Do you keep savings that could sit in an offset account?
- Might you sell, move or refinance in the next few years?
- Would certainty let you sleep better, even if it costs a little more?
If most of your answers point to certainty, fixing some or all of the loan may suit you. If they point to flexibility, variable may be better. Mixed answers usually mean a split. Use our home loan repayments calculator to test different rates on your own balance.
Frequently asked questions
Often only up to a limit. Fixed rate loans may cap extra repayments each year, and paying more than the cap can trigger break costs. Some fixed loans allow no extra repayments at all. Ask the lender for the exact allowance before you fix. If you expect bonuses, a tax refund or an inheritance, keep part of the loan variable so that money can go straight onto the loan.
It’s a fee the lender may charge if you end or change the fixed rate contract early, for example by refinancing, selling or repaying more than allowed. It usually reflects how much the lender’s own fixed-rate funding costs have fallen since you fixed, the balance and the time left. It can be small, nothing, or thousands of dollars, so always ask for a written estimate first.
It’s the variable rate your loan moves to when the fixed period ends, unless you fix again or switch loans. Revert rates can be higher than the rates lenders offer new customers, so rolling onto one without checking can cost you. Ask your lender a couple of months before the fixed period ends what rate will apply, and compare it with the market.
Fixing protects you from rises during the fixed period, but fixed rates already reflect where lenders expect rates to go, so fixing isn’t automatically cheaper. If a rise would stretch your budget, fixing some or all of the loan buys certainty. If you have a buffer and value flexibility, variable may suit you. Many borrowers split the loan rather than bet on one outcome.
Sometimes, but it’s less common. Offset accounts are generally offered on variable loans, and Moneysmart notes that fixed rate loans may have fewer features. If an offset matters to you, a split loan lets you fix part of the balance and link the offset to the variable part, where your savings reduce the interest.
Sources
- Moneysmart: Fixed vs variable home loan interest rates (opens in a new tab)
- Moneysmart: Choosing a home loan (opens in a new tab)
- Moneysmart: Switching home loans (opens in a new tab)
- Reserve Bank of Australia: Cash rate target (opens in a new tab)
- APRA: APG 223 Residential Mortgage Lending (opens in a new tab)
This article is general information only and doesn't take your objectives, financial situation or needs into account. Figures and eligibility rules change; check the official sources above or talk to us before you act. Keystone Home Loans Pty Ltd ATF BEMA Family Trust, Credit Representative Number 564704 is authorised under Australian Credit Licence Number 384704.
Written by
Phillip Bui
Founder and Principal Mortgage Broker at Keystone Home Loans, based in Arncliffe, NSW. Accredited Mortgage Broker and Full Member of the Mortgage & Finance Association of Australia (MFAA).
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