Everyone wants to know whether to fix. Most people ask it as a prediction question: where are rates going? Nobody can answer that reliably, including the banks. A better way in is to ask what you need the loan to do for you over the next few years, and then pick the structure that fits.

How a variable rate works

The lender can change a variable rate at any time. Your repayments move when it does, up or down. In exchange for that uncertainty you usually get more flexibility: you can generally make extra repayments freely, hold an offset account, redraw, and refinance without a break fee.

How a fixed rate works

You lock the rate for a set term, commonly one to five years. Your repayment stays the same for that period whatever happens in the market, which makes a budget easier to plan. When the term ends, the loan rolls onto the lender's variable rate unless you choose a new fixed term or refinance.

The catch is what you give up. Fixed loans commonly cap the extra repayments you can make each year, often do not offer a full offset account, and can carry a break cost if you pay the loan out or switch early. That break cost can be large, and it depends on where rates are compared with when you fixed, so it is hard to predict.

Where the two differ in practice

  • Certainty. Fixed wins. You know the repayment.
  • Flexibility. Variable wins. Extra repayments, offset and redraw are usually unrestricted.
  • Exit. Variable is simple. Leaving a fixed loan early can cost real money.
  • Selling. If you might sell or upgrade within the fixed term, a break cost can land at the worst moment.

The split loan

You do not have to choose one. A split loan puts part of the balance on a fixed rate and part on variable. People often keep the variable portion large enough to hold an offset account or take lump-sum repayments, and fix the rest for peace of mind. If you are unsure, it is a reasonable way to hedge, though you do carry two rates and two sets of rules. We cover the offset side in our guide to offset accounts vs redraw.

Questions that should decide it

  • How tight is your budget? If a repayment rise would genuinely hurt, certainty has real value.
  • Do you have, or expect to have, spare cash to park in an offset or pay down the loan? If yes, variable keeps that door open.
  • Might you sell, renovate, or restructure in the next few years?
  • Are you buying an investment property? Some investors fix for cash-flow certainty, others stay variable to keep offset flexibility. Tax treatment is a conversation for your accountant.

What about when the fixed term ends?

This one gets missed. Plenty of borrowers fix, then drift onto the revert rate when the term finishes without ever looking at the market. A fixed term ending is a natural moment to review the whole loan. Our article on when to refinance goes through what to check, and it is worth diarising the expiry date the day you sign.

Get it looked at properly

The right call depends on your income, your plans and the specific loan terms on offer, which differ a lot between lenders. If you want to talk it through, get in touch or call 1300 001 755. We are licensed credit advisers in Forestville, working with clients across the Northern Beaches and North Shore.

Frequently asked questions

Is a fixed or variable home loan better?

Neither is better in general. Fixed gives repayment certainty for a set term. Variable gives flexibility such as unlimited extra repayments and offset accounts. The right one depends on your budget and plans.

Can I split my home loan between fixed and variable?

Yes. Most lenders let you split a loan so part is fixed and part is variable. You choose the proportions.

What happens when my fixed rate ends?

The loan normally reverts to the lender's variable rate unless you fix again or refinance. It is a good time to review the loan.

Is there a penalty for leaving a fixed rate early?

There can be. Lenders may charge a break cost if you repay or refinance during the fixed term. The amount depends on market movements and is hard to predict.

General information only. It does not take your objectives, financial situation or needs into account, and it is not credit or financial advice. Lender policy, rates and eligibility change regularly and vary between lenders — talk to us about your own circumstances before acting on anything here.