Fixed vs variable rate
Whether your interest rate is locked for a set period or moves with the market.
A fixed rate locks your interest rate for an agreed term, usually one to five years, giving certainty of repayments. A variable rate moves as the lender adjusts pricing, typically following the cash rate.
Fixed loans trade flexibility for certainty. They often restrict extra repayments, rarely include a full offset account, and charge break costs if you repay early or sell.
A split loan takes part of each — some certainty, some flexibility. It is a reasonable compromise for borrowers who cannot confidently pick a direction for rates.
Timing the decision is harder than it looks. Lenders price fixed rates from the same market expectations everyone else can see, so a fixed rate that looks cheap usually reflects an expectation that rates will fall rather than an opportunity to beat the market.
The cost of breaking a fixed loan
Selling two years into a five-year fixed term can trigger break costs running into thousands, calculated from the lender's loss on wholesale funding rather than a flat fee.
The bit people get wrong
Fixed rates are set by lenders using market expectations, so you are rarely getting a bargain relative to what the market already expects. Fixing buys certainty, not cheapness.
Common questions
Should I fix my home loan?
Fix if repayment certainty matters more than flexibility, particularly on a tight budget. Stay variable if you want offset, unlimited extra repayments, or expect to sell.
What happens when a fixed term ends?
The loan reverts to the lender's variable rate, which is often uncompetitive. It is a natural point to renegotiate or refinance.
Can I make extra repayments on a fixed loan?
Usually only up to an annual cap, commonly around $10,000 to $30,000. Exceeding it can trigger break costs.
Run your own numbers