Fixed vs Variable Home Loans Compared
Fixed vs variable home loans compared: what each trades away, how break costs work, and when a split loan gives you the best of both.
Fixed or variable? Neither is better. Fixed buys repayment certainty for a few years; variable trades certainty for flexibility.
The right pick depends on your life, not on predicting where interest rates go next — which nobody does reliably.
Fixed: boring on purpose
A fixed rate locks your interest rate for a set stretch, usually one to five years. Your repayment is the same every time, which makes budgeting easy.
The price is flexibility. Fixed loans often cap extra repayments, may skip the full offset account (a savings account linked to your loan — every dollar in it cancels a dollar of loan you're charged interest on), and if rates fall, your repayments don't.
- Repayments never move during the fixed term
- Easy to budget — a gift for tight household budgets
- Extra repayments are often capped
- Rates drop? You keep paying the old rate
Variable: freedom, with mood swings
A variable rate moves with the market. Rates fall, your repayments can fall; rates rise, your repayments rise — sometimes with little warning.
In exchange, you get the full toolkit: unlimited extra repayments, a proper offset account, redraw (pulling back extra repayments if you need the cash later), and no penalty for selling or refinancing — moving your loan to another bank for a better deal.
- Repayments move with the market — both directions
- Usually allows unlimited extra repayments
- Offset and redraw come standard
- Cheaper and easier to refinance or exit
Break costs: the exit fee nobody reads about
Leave a fixed loan early — sell, refinance, or pay it out — and the lender can charge break costs (the exit fee for leaving a fixed rate early). When you fixed, the bank locked in its own funding to cover your loan; break costs pass you the cost of unwinding that deal.
Depending on rate movements and time left on your term, the fee ranges from trivial to painful. If you might sell or refinance during the fixed period, price this in before you lock.
⚠️The trap
Break costs on a fixed loan can run to thousands. Locking in for five years only works if your life co-operates for five years.
The split loan: refusing to pick a side
You don't have to choose. A split loan fixes part of your balance and leaves the rest variable — say 60% fixed, 40% variable.
The fixed slice shields most of your repayment from rate rises; the variable slice keeps your offset and unlimited extra repayments alive. Many borrowers find the blend easier to live with than an all-or-nothing bet.
💡Quick win
Splitting isn't fence-sitting — it's covering yourself both ways. You cap your rate-rise pain and keep your offset working at the same time.
The tiebreaker
Fixed suits tight budgets, single incomes and anyone who prizes a predictable number. Variable suits people who want to make extra repayments, park savings in an offset, or might sell or refinance soon.
Whichever way you lean, run the actual repayment numbers before signing anything.
FAQ
Can I make extra repayments on a fixed loan?
Usually only up to a cap the lender sets, and exceeding it can trigger fees. Variable loans typically allow unlimited extra repayments — one of their biggest wins.
What are break costs on a fixed loan?
The exit fee a lender can charge if you leave a fixed loan before the term ends — say, by selling or refinancing. The size depends on how rates have moved and how long is left, and it can be significant.
Is a split loan worth it?
Often, yes. You get repayment certainty on the fixed portion and flexibility — offset, unlimited extra repayments — on the variable portion. The right ratio depends on your budget and plans.
Run your own numbers
Sources: figures checked against ATO published rates and thresholds for FY2025-26 at the review date. See how we check our numbers.
⚠️ General information only — not tax or financial advice. Figures relate to FY2025-26 unless stated otherwise.