In Australian home loans, you're choosing between two interest-rate structures: fixed (locked-in rate for a set period, usually 1–5 years) and variable (rate moves with the lender's pricing, generally tracking the Reserve Bank cash rate plus a margin). Each has predictable trade-offs that map cleanly to borrower situations.
Fixed rate — what you get
- Rate certainty for the fixed period. Your repayment won't change even if the RBA raises rates 5 times.
- Protection from rises. If rates jump 1%, you're insulated; your loan keeps charging the rate you locked.
- Predictable budgeting. Useful for borrowers with tight cashflow or limited tolerance for repayment fluctuation.
Fixed rate — what you give up
- Offset accounts — most fixed loans don't offer 100% offset.
- Unlimited extra repayments — typically capped at $10K–$20K per year, with penalties above.
- Free exit — selling or refinancing during the fixed term triggers break costs.
- Benefit if rates fall — your rate stays high even if market rates drop.
- Future negotiation leverage — banks rarely renegotiate fixed rates mid-term.
Variable rate — what you get
- Full feature set: 100% offset, free redraw, unlimited extra repayments, no break costs.
- Benefit if rates fall: your repayment drops in line with rate cuts.
- Free to refinance or sell at any time without exit penalties.
- Negotiability: easier to negotiate the rate down with your lender, especially when shopping refinance options.
Variable rate — what you give up
- Rate certainty. If the RBA hikes 5 times, you wear all of it.
- Predictable budgeting. Repayments change as rates move.
- Sleep at night if you've borrowed at your maximum capacity and have no buffer.
Split loans: getting both
Most Australian lenders let you split a loan into fixed and variable portions:
- $300K fixed at 5.99% for 3 years (certainty on half)
- $300K variable at 6.15% with an offset account (flexibility on the other half)
This is the most common compromise position for borrowers who want some certainty without giving up offset entirely. See the Split Loan Calculator for modelling.
A typical split structure:
- 60–80% variable with offset (where you park salary and savings)
- 20–40% fixed (locked at current market rate for 2–3 years)
The variable portion gets the offset benefit (and full feature set), while the fixed portion gives some protection if rates rise sharply.
The rate-rise math
If you have a $600,000 loan and rates rise 1%, your monthly repayment increases by approximately $390. Over 12 months, that's $4,680 of extra interest.
A fixed-rate borrower at a current 6% rate, paying a 0.3% premium for the certainty, gives up $1,800 a year in exchange for protection against a $4,680+ hit if rates rise 1%. The expected-value math depends on your view of rate direction.
The Reserve Bank publishes a forward curve (market expectations) — but that curve has historically been a poor predictor of where rates actually go. The right framing is usually risk tolerance, not forecasting.
Break costs in practice
If you fix a $500,000 loan at 5.99% for 3 years and rates fall to 4.99% after 12 months, your break cost (very roughly) is:
500,000 × 1% × 2 years remaining ≈ $10,000
Banks calculate this using a "wholesale rate differential" formula that approximates their loss on the rate move. The exact figure depends on the lender, the wholesale curve at the moment of break, and the remaining term. Break costs are usually quoted as an upfront single payment.
Common decisions
| Situation | Likely fit |
|---|---|
| First home buyer at max borrowing capacity | Mostly fixed for certainty (or fully fixed if rates appear elevated) |
| Investor with surplus cashflow | Variable with offset for flexibility and feature set |
| Borrower expecting to sell within 2 years | Variable (no break costs) |
| Borrower with cashflow shock risk (single income, variable career) | Heavily fixed for protection |
| Borrower with large savings parked in offset | Variable to maximise offset benefit |
| Recently refinanced and not planning to move again | 30–50% fixed, rest variable with offset |
For the actual numbers on a split loan structure tailored to your situation, see the Split Loan Calculator or the Loan Comparison Calculator.
Frequently asked questions
Which is better — fixed or variable?
Neither is universally better. Fixed wins if rates rise during your fixed period and you value certainty. Variable wins if rates fall, if you want offset and redraw features that fixed loans typically don't offer, or if you might sell or refinance during the term. Most Australian borrowers end up on variable; many split between the two.
How long can I fix my rate for?
Most Australian lenders offer fixed periods of 1, 2, 3, 4, or 5 years. A few go to 7 or 10 years, but the rate gets less competitive at longer durations. After the fixed period expires, the loan automatically rolls to the lender's standard variable rate (called the 'revert rate'), which is usually much higher than competitive market rates — at that point, most borrowers refinance or negotiate.
What are break costs on a fixed loan?
If you exit a fixed-rate loan before the term ends — by selling the property, refinancing, or paying it off — the lender charges a break cost. The cost reflects the lender's loss if interest rates have fallen since you fixed: they made a forward commitment based on the higher rate, and breaking it forces them to relend at the new lower rate. Break costs can range from a few hundred dollars to tens of thousands on large loans with several years remaining, depending on how far rates have moved.
Can I make extra repayments on a fixed loan?
Usually yes, but with limits. Most fixed loans allow $10,000–$20,000 of extra repayments per year without penalty. Going above the cap triggers break costs. Compare this to variable loans which generally allow unlimited extra repayments. If you expect a big windfall (inheritance, bonus, sale of another asset) during the fixed period, account for the cap when choosing how much to fix.
Do fixed loans have offset accounts?
Rarely. Most major Australian lenders don't offer 100% offset on fixed-rate loans. Some offer partial offset (40–60%). Many borrowers solve this by splitting the loan — fixing a portion and keeping the rest variable with an offset account against the variable portion.
What's a split loan?
A split loan divides your borrowing into two (or more) sub-loans, each with its own rate and features. The classic split is fixing half (e.g. $300K at a 3-year fixed rate for certainty) and keeping half variable (e.g. $300K with an offset account for flexibility). Repayments are calculated on each portion separately. Most lenders allow splits at no extra cost — see the [Split Loan Calculator](/calculators/split-loan/) for modelling.
What happens when my fixed rate ends?
Your loan automatically rolls onto the lender's standard variable revert rate, which is typically 1–2% higher than competitive market rates. This is the moment most borrowers refinance or negotiate — your existing lender will often match a market rate if you ask, especially if you mention you're considering switching. Set a calendar reminder for 2–3 months before your fixed period ends so you can shop rates.
When should I fix?
When you value certainty (you've stretched on the loan and another rate rise would hurt), when fixed rates are notably below variable rates (rare — usually the reverse), or when you have strong conviction rates will rise. When NOT to fix: if you're planning to sell or refinance soon, if you want maximum offset benefit, or if rates have been rising rapidly and may be near a peak.
Sources
Last updated: 16 May 2026