Fixed vs variable home loans

A fixed rate locks your repayment for a set term; a variable rate moves with the market. Here's how each works, when each wins, and why many borrowers split the difference.

6 min read·Reviewed 18 June 2026·Ratesniffers Editorial Team

What is the difference between a fixed and variable home loan?

A variable home loan rate moves over the life of the loan. When the Reserve Bank of Australia changes the cash rate, lenders usually pass some or all of that change through to variable rates, so your repayment can rise or fall. A fixed home loan rate is locked for a set term — most commonly one to five years — so your repayment stays exactly the same for that period regardless of what the RBA does, then reverts to the lender's variable rate when the fixed term ends.

Neither is universally cheaper. A variable rate wins when rates fall; a fixed rate wins when rates rise. Because no one can reliably predict the RBA, the choice is really about whether you value flexibility (variable) or certainty (fixed).

Fixed vs variable home loans: at a glance

Here's how the two compare on the things that matter most to a borrower.

Feature	Fixed rate	Variable rate
Repayment	Locked for the fixed term (1–5 years)	Moves with the RBA cash rate
If rates rise	Protected — repayment unchanged	Your repayment goes up
If rates fall	No benefit until the term ends	You benefit straight away
Offset account	Rarely offered	Almost always included
Extra repayments	Usually capped or banned	Unlimited
Exit or refinance early	Break costs may apply	No break costs
Best for	Certainty and easy budgeting	Flexibility and offset savings

When should you choose a variable rate?

Variable loans are the more flexible product. They almost always come with a full offset account and unlimited extra repayments, and they let you refinance or pay the loan out early without break costs. If you expect to make extra repayments, sell, or refinance within a few years — or you want an offset to park savings against the loan — variable is usually the better fit.

You benefit immediately when the RBA cuts the cash rate.
Offset accounts and unlimited extra repayments are standard.
No break costs if you refinance, sell, or pay out early.
The trade-off: your repayment rises if rates go up.

When should you fix your home loan?

Fixing buys certainty. Your repayment is locked, which makes budgeting easy and protects you if rates rise during the fixed term. It suits borrowers on a tight budget, those who want to know their exact repayment for a few years, or anyone who believes rates are more likely to rise than fall.

The trade-offs are real: most fixed loans cap or ban extra repayments, rarely offer a full offset, and charge break costs if you exit early. If rates fall after you fix, you're locked out of the saving until the term ends.

Your repayment is locked for the fixed term — easy budgeting.
You're protected if rates rise during the term.
The trade-off: limited extra repayments, often no offset, and break costs to exit early.
If rates fall, you don't benefit until the fixed term ends.

What are break costs on a fixed loan?

If you exit a fixed loan early — by refinancing, selling, or making large extra repayments — the lender can charge a break cost (also called an economic cost or early repayment adjustment). It compensates the lender for the interest it expected to earn over the remaining fixed term, and it's largest when market rates have fallen since you fixed. Break costs can run from a few hundred dollars to tens of thousands on a large loan, so always ask the lender for a written break-cost quote before exiting a fixed rate.

Can I have both? Split home loans

Yes. A split loan divides your mortgage into a fixed portion and a variable portion — for example 50/50, or 70% fixed and 30% variable. The fixed portion gives you repayment certainty on most of the loan, while the variable portion keeps an offset, lets you make extra repayments, and benefits if rates fall. Splitting is a common middle path for borrowers who can't decide, and most lenders offer it at no extra cost.

There's no single right answer. If certainty helps you sleep, fix. If flexibility and an offset matter more, stay variable. If you want some of each, split — you don't have to bet the whole loan on which way rates move.

How fixed and variable rates are priced

Variable rates track the RBA cash rate plus each lender's margin, so they move after the RBA decides. Fixed rates are priced off what money markets expect the RBA to do over the fixed term, so they often move ahead of the cash rate — fixed rates can fall (or rise) months before the RBA actually acts. That's why the lowest fixed rate and the lowest variable rate on any given day reflect different things: today's cost versus the market's forecast.

References

RBA — Cash rate target — How the cash rate drives variable home loan rates
ASIC MoneySmart — Choosing a home loan — Fixed vs variable consumer guidance and break costs

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