TL;DR — Key takeaways
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One of the first decisions every home buyer faces — and one of the most consequential — is choosing between a fixed and variable interest rate. Get it right and you could save tens of thousands over the life of your loan. Get it wrong and you’re either paying more than you need to, or locked in when rates move against you.
There’s no universally correct answer. But there is a right answer for your situation. This guide covers everything you need to know to make that call. If you haven’t already, check our First Home Buyer’s Guide to Home Loans for a full overview of the home buying process.
What is a fixed rate home loan?
A fixed rate home loan locks your interest rate for a set period — typically 1, 2, 3, or 5 years. Your repayments stay the same for the entire fixed term, regardless of what the Reserve Bank of Australia (RBA) does with the cash rate. According to MoneySmart, a fixed rate makes budgeting easier because you know exactly what your repayments will be.
When the fixed term ends, the loan automatically rolls onto the lender’s standard variable rate — unless you renegotiate another fixed term or refinance. The RBA publishes lenders’ interest rates monthly if you want to track where fixed and variable rates are heading.
2026 context: The RBA increased the cash rate three times in early 2026 — in February, March, and May. Fixed rates began rising in late 2025 following movements in swap rates, while the share of outstanding housing loans on fixed rates fell to a historical low of less than 5% in 2025 before recovering slightly. Your broker can tell you where fixed rates currently sit relative to variable and whether fixing makes sense right now.
What is a variable rate home loan?
A variable rate home loan moves with the market. When the RBA raises the cash rate, your lender typically raises your rate. When it cuts, your rate usually falls. Eight times a year the RBA Monetary Policy Board meets and decides whether to move the cash rate — and that decision flows through to your repayments.
Variable loans usually come with more features — including offset accounts, redraw facilities, and the ability to make unlimited extra repayments without penalty. These features can save significant interest over the life of a loan if used well. Use our loan repayment calculator to see how extra repayments affect your loan term.
Fixed vs variable: side-by-side comparison
The biggest risk of fixing: break fees
If you need to exit a fixed rate loan early — because you’re selling, refinancing, or your circumstances change — you may face a break fee. This is calculated by the lender based on the difference between your fixed rate and current wholesale rates, multiplied by your remaining loan balance and term. In some cases, break fees run into tens of thousands of dollars.
Example: You fix at 6.2% for 3 years. 18 months later, rates have dropped to 5.5% and you want to refinance. The break fee is calculated on the rate differential (0.7%) applied to your remaining balance for the remaining term. On a $600,000 loan with 18 months left, that could easily be $8,000–$15,000. Always ask your lender to calculate the break fee before making any decision to exit a fixed rate loan early.
If there’s any chance you’ll need to sell or refinance within your fixed term — job change, family growth, divorce, relocation — factor the break fee risk into your decision before fixing. Your broker will model this before you commit.
The power of an offset account (why variable wins for many)
An offset account is a transaction account linked to your variable loan. The balance in your offset reduces the loan amount you’re charged interest on. If you have a $600,000 loan and $40,000 in your offset, you only pay interest on $560,000.
Over a 30-year loan, a consistently funded offset account can save $50,000–$150,000+ in interest and cut years off your loan term. This is why many borrowers on competitive variable rates end up paying less overall than those on a fixed rate — even when the fixed rate is slightly lower. Use our borrowing power calculator as a starting point, then ask your broker to model offset savings for your situation.
Fixed rate loans rarely offer offset accounts. Some lenders offer a partial offset on fixed loans, but it’s usually limited to a small percentage of the loan balance. If offset functionality is important to your strategy, a variable or split loan is almost always the better structure.
The split loan: the best of both
A split loan divides your mortgage into two portions — one fixed, one variable. You get repayment certainty on the fixed portion and flexibility (including offset and extra repayments) on the variable portion. This is a genuinely useful structure for borrowers who want some protection from rate rises without giving up all the benefits of variable.
Common split 50% / 50% Half fixed, half variable. Balanced approach for borrowers who want certainty on half their repayments while keeping an offset on the other half. |
Rate-rise hedge 70% fixed / 30% variable More certainty on repayments. Good when rates are expected to rise and you want most of your loan protected, but still want some offset flexibility. |
Offset focus 30% fixed / 70% variable Maximum offset and repayment flexibility with a smaller fixed portion for comfort. Best when you have significant savings to park in offset. |
How to choose: who suits fixed, who suits variable
Important: Nobody can reliably predict where interest rates will go. Banks, economists, and the RBA are often wrong. Choosing fixed or variable based purely on a rate forecast is speculation. The better question is: which structure fits your financial life right now — your income stability, your savings, your plans for the next 2–5 years? A Rateseeker broker can help you answer that question with real numbers.
What happens when your fixed rate expires?
When your fixed term ends, your loan automatically reverts to the lender’s standard variable rate — which is almost always higher than the discounted variable rate you could get elsewhere. This is called the “revert rate” and it can be a nasty surprise.
Don’t wait for your fixed rate to expire before reviewing your options. Start talking to your broker 3–6 months before rollover. That gives you time to renegotiate with your current lender or refinance to a better deal without being caught on the revert rate. Read our refinancing guide to understand when switching makes sense.
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Frequently asked questions
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