What is a variable-rate home loan?
With a variable-rate home loan, the interest rate can change during the life of the loan. If the lender increases the applicable variable interest rate, your required repayments may increase. If the lender decreases the rate, your required repayments may decrease. The exact effect depends on the loan structure and lender.
Variable-rate home loans commonly provide greater flexibility than fixed-rate loans. Depending on the product, features may include:
- additional repayments
- redraw
- offset accounts
- greater flexibility when refinancing or changing the loan
Features vary between products
Not every variable home loan includes all of these features. Availability, conditions and fees vary between lenders and products.
What is a fixed-rate home loan?
A fixed-rate home loan has an interest rate that is fixed for an agreed period. During the fixed period, changes to variable interest rates generally do not change the interest rate applying to the fixed portion of the loan. This can provide greater certainty around repayments during that period.
However, fixed-rate loans can also have restrictions or costs that need to be understood. Depending on the lender and product, these may relate to:
- additional repayments
- redraw
- offset facilities
- refinancing during the fixed period
- selling the property
- repaying the loan early
- changing the loan structure
Restrictions are not identical
Fixed-rate products differ. The restrictions and costs that apply depend on the specific lender, product and loan contract.
What are the main advantages of a fixed-rate home loan?
Depending on the product and your circumstances, potential advantages can include the following.
Repayment certainty
Fixing can provide greater certainty about the interest rate and scheduled repayments during the fixed period. That may make budgeting easier for borrowers who value predictable repayments.
Protection from variable-rate increases during the fixed period
If variable rates rise while your rate remains fixed, the interest rate on the fixed portion generally remains unchanged during the agreed fixed period. This works both ways: if variable rates fall, the fixed rate generally does not automatically fall with them.
What are the disadvantages of fixing a home loan?
Potential disadvantages can include the following.
Less flexibility
Some fixed-rate products place limits on additional repayments or other features.
Offset or redraw limitations
Offset accounts or redraw may not be available, or may operate differently, on some fixed-rate products.
Break costs
Costs may apply if you repay, refinance or otherwise break a fixed-rate loan before the fixed period ends. The existence and amount of any break cost depends on the lender, loan and circumstances.
Future rate reductions
If variable rates fall during the fixed period, a borrower on a fixed rate generally continues paying the agreed fixed rate until the fixed period ends, unless the loan is changed and applicable costs or conditions are dealt with.
What are the main advantages of a variable-rate home loan?
Depending on the product, potential advantages can include the following.
Greater flexibility
Variable loans often provide more flexibility for additional repayments and changes to the loan, although product rules vary.
Access to features
Depending on the product, borrowers may have access to offset accounts, redraw and additional repayments.
Benefit if the lender reduces the variable rate
If the lender reduces the applicable variable rate, repayments or interest costs may reduce depending on the loan.
Easier loan changes
A variable loan may be easier to refinance or repay compared with breaking a fixed-rate period, although discharge fees, government charges and other costs may still apply.
What are the disadvantages of a variable-rate home loan?
The major trade-off is uncertainty. If the lender increases the applicable variable interest rate, repayments can increase, and that can make budgeting more difficult.
Borrowers considering variable lending should think about whether they could manage higher repayments if rates changed, in the context of their own circumstances.
Does the RBA cash rate determine my home-loan rate?
Not directly. The Reserve Bank of Australia sets the cash rate target as part of monetary policy. Changes in the cash rate can influence lenders' funding costs and variable mortgage rates, but lenders determine the interest rates applying to their own loan products.
The RBA reported in 2026 that changes in the cash rate had been passed through broadly to variable housing lending rates. Fixed mortgage rates can behave differently, because lenders also consider funding conditions and market interest rates over the relevant fixed period.
Is fixed better when interest rates are rising?
Not necessarily. It can be tempting to think rates are rising, so fixing must be the answer. The decision is more complicated than that.
Fixed rates available today can already reflect financial-market expectations about future interest rates, and future rate movements are uncertain. A fixed loan may provide repayment certainty, but that certainty can come with trade-offs such as reduced flexibility or potential break costs.
The decision should therefore consider the actual fixed and variable products available and how their features fit your circumstances, rather than relying solely on a prediction about interest rates.
Is variable better when interest rates are falling?
Not necessarily. A variable-rate borrower may benefit if their lender reduces the applicable variable rate. However:
- future rate movements are uncertain
- lenders determine their own lending rates
- loan features differ
- fees differ
- fixed and variable pricing can differ
- the lowest rate is not automatically the most suitable loan
Look at the whole structure
The decision should consider the complete lending structure, not one number in isolation.
What happens when a fixed-rate period ends?
When the fixed period expires, the loan will generally move to the lender's applicable variable rate unless another arrangement is made. Depending on the lender and circumstances, borrowers may be able to consider options such as:
- moving to a variable rate
- selecting another fixed-rate period
- splitting the loan
- refinancing
- negotiating or reviewing the existing loan
Review before the default applies
The available options and rates depend on the lender and circumstances at that time. Borrowers approaching the end of a fixed period should review their options before assuming the default outcome is appropriate.
What are fixed-rate break costs?
A break cost or early repayment cost may apply when certain fixed-rate loans are repaid or changed before the fixed period ends. This can potentially occur when a borrower:
- refinances
- sells the property
- repays a substantial amount
- changes the loan structure
- otherwise ends the fixed-rate arrangement early
Get an actual figure from the lender
Whether a cost applies and how it is calculated depends on the lender, loan contract and market circumstances. Borrowers considering changing a fixed-rate loan should obtain an actual payout or break-cost figure from the lender rather than relying on an estimate.
Can I make extra repayments on a fixed home loan?
Possibly. Some fixed-rate loans allow additional repayments up to certain limits, while others may have different restrictions. The rules vary between products.
Borrowers who expect to make substantial extra repayments should understand the fixed-rate loan's repayment rules before choosing the product.
Can a fixed home loan have an offset account?
Sometimes, but not every fixed-rate loan offers a full offset facility. Offset availability and how the offset operates can vary between lenders and products.
Moneysmart notes that mortgage offset accounts are generally available with variable-rate home loans. Borrowers who maintain significant savings should consider whether access to an offset account is important when comparing loan structures.
What is a split home loan?
A split home loan divides lending between fixed-rate and variable-rate portions. Rather than fixing the entire home loan, a borrower may choose to fix part and leave part variable. Depending on the products involved, this can provide a combination of:
- repayment certainty on the fixed portion
- variable-rate exposure on the variable portion
- potential flexibility on the variable portion
- access to features associated with the variable portion
A split doesn't remove rate risk
If variable rates increase, the variable portion can still be affected. If variable rates fall, only the variable portion generally receives the benefit of the reduction.
Should I fix half my home loan?
There is no universal percentage that borrowers should fix. The appropriate split depends on factors such as:
- cash flow
- repayment certainty
- savings
- offset usage
- expected additional repayments
- future plans
- tolerance for repayment changes
- available products
- applicable rates and fees
The split should have a reason
A 50/50 split is not inherently better than another structure. What matters is that the chosen split reflects a deliberate reason based on your circumstances.
Fixed vs variable: which gives me an offset account?
Offset accounts are generally associated with variable-rate home loans, although some fixed products may offer offset functionality. The important question isn't simply whether a product advertises an offset. Borrowers should also understand:
- whether it is a full or partial offset
- applicable fees
- the interest rate
- how the account is linked
- whether the feature provides enough benefit to justify any additional cost
Features have a price
Moneysmart recommends considering whether the benefits of an offset account outweigh the rate or fees associated with the product.
Is redraw the same as offset?
No. An offset account is a separate account linked to the mortgage, with its balance reducing the amount of the loan on which interest is calculated. A redraw facility involves accessing eligible additional repayments previously made to the loan, and access depends on the loan terms.
The two can have different practical, legal and tax implications depending on the circumstances. Rove Financial does not provide tax advice. Borrowers should obtain appropriate tax advice where relevant, particularly when loan funds may later relate to an investment purpose.
Which is better for first-home buyers?
Neither fixed nor variable is automatically better simply because someone is buying their first home. A first-home buyer might value:
- predictable repayments
- flexibility
- ability to make additional repayments
- access to offset
- redraw
- ability to refinance later
- simplicity
- overall cost
Structure follows circumstances
The loan structure should reflect the buyer's circumstances rather than their status as a first-home buyer alone.
Which is better when refinancing?
Refinancing provides an opportunity to reconsider the loan structure. A borrower might review:
- current interest rate
- available variable rates
- available fixed rates
- offset usage
- redraw
- additional repayment plans
- remaining loan term
- future plans
- refinancing costs
- fixed-rate break costs where relevant
A new lender doesn't require a new structure
Changing lenders does not automatically mean the loan structure needs to change. Likewise, a lower advertised rate does not automatically make the new structure better.
Can a mortgage broker help me choose fixed or variable?
Yes. A mortgage broker can help explain the fixed, variable and split options available through their lender panel and compare relevant rates, fees, features and lending structures.
The broker should consider the borrower's circumstances and objectives rather than simply predicting future interest rates. The lender makes the lending decision.
What should I compare besides the interest rate?
Interest rate matters, but it isn't the only consideration. Depending on your circumstances, compare:
- comparison rate where relevant
- application fees
- ongoing fees
- package fees
- offset availability
- redraw
- additional repayment rules
- fixed-rate break conditions
- loan term
- repayment type
- ability to split the loan
- other features you genuinely expect to use
Only pay for features you'll use
Moneysmart recommends considering whether loan features are actually worth their cost.
Frequently asked questions
Is a fixed or variable home loan better?
Neither is universally better. Fixed loans can provide greater repayment certainty for a set period, while variable loans can provide greater flexibility and may benefit from rate reductions. The appropriate structure depends on the borrower's circumstances and priorities.
What happens if interest rates rise on a fixed mortgage?
The interest rate on the fixed portion generally remains unchanged during the agreed fixed period, subject to the loan terms.
What happens if rates fall while my mortgage is fixed?
The fixed rate generally continues for the agreed fixed period. Changing or ending the fixed arrangement may involve conditions or costs.
Can I have part fixed and part variable?
Yes. Some home loans can be split between fixed and variable portions, subject to lender and product availability.
Can I have an offset account with a fixed loan?
Some fixed-rate products may offer offset functionality, but it is not universal. Offset accounts are generally more commonly associated with variable-rate home loans.
Can I make extra repayments on a fixed home loan?
Some fixed loans allow additional repayments subject to product rules or limits. Check the specific loan conditions.
What is a fixed-rate break cost?
A break cost can potentially apply when certain fixed-rate lending arrangements are repaid or changed before the end of the fixed period. The actual amount depends on the loan and circumstances.
Does the RBA set my mortgage interest rate?
No. The RBA sets the cash rate target. Lenders determine the rates applying to their mortgage products, although cash-rate movements can influence lending rates.
Should I fix my mortgage because rates might rise?
Future interest-rate movements are uncertain. Choosing fixed or variable should consider your need for certainty, flexibility, features, costs and financial circumstances rather than relying only on an interest-rate forecast.
General information only. This information does not take into account your objectives, financial situation or needs. Interest rates, fees, loan features, fixed-rate conditions, break costs and eligibility vary between lenders and products and may change. Future interest-rate movements cannot be predicted with certainty. Rove Financial considers lending options available through its lender panel and does not represent that it compares every lender or product in the Australian market. Credit is subject to lender approval and applicable lending criteria. Consider obtaining independent tax or legal advice where relevant.