Fixed vs Variable Rates
Should I choose a fixed or variable interest rate on my home loan?
By Andrew, franklenn FINANCE 7 min readUpdated 3 November 2026
The short answer
A fixed rate locks your interest rate for a set period, usually one to five years, giving you certainty over repayments. A variable rate moves with the market and the lender's decisions, but usually offers more flexibility, such as unlimited extra repayments and an offset account. Neither is always better. Many borrowers split their loan to get some certainty and some flexibility. The right choice depends on your budget, plans and appetite for risk.
Detailed explanation
How fixed rates work
With a fixed rate, your rate and repayments stay the same for the fixed term, no matter what happens to rates in the market. That makes budgeting easier, which can be valuable when money is tight or you have a growing family.
The rate you get is the rate on the day the loan settles or the fixed rate starts, unless you pay for a rate lock. Fixed rates can change between application and settlement, so the rate you were quoted may not be the one you get.
The trade-off is flexibility. Fixed loans often limit extra repayments (commonly to around $10,000 a year), may not offer an offset account, and can charge break costs if you pay off the loan, refinance or sell during the fixed term.
How variable rates work
A variable rate can rise or fall at any time, often following changes to the Reserve Bank's cash rate, though lenders can also move rates independently. Your repayments change when the rate does.
Variable loans usually allow unlimited extra repayments, redraw and offset accounts, and you can refinance or sell without break costs. That makes them popular with people who want to pay down debt faster or might sell or refinance soon.
Break costs explained
Break costs are what a lender may charge if you end a fixed rate early. They are usually higher when market rates have fallen since you fixed, because the lender loses out on the higher rate you agreed to pay.
Break costs can range from nothing to many thousands of dollars. Ask your lender for an estimate before refinancing, selling or making a large extra repayment during a fixed term.
Your lender can explain how break costs are worked out, and you can usually ask for a written estimate at any time. If you are planning a change, getting that number first can stop a good idea turning into an expensive one.
Split loans: a bit of both
A split loan divides your borrowing into a fixed portion and a variable portion. For example, you could fix 60% for certainty and keep 40% variable with an offset account for flexibility.
There is no perfect split. It comes down to how much certainty you need and how much you value flexibility. We help clients find a balance they are comfortable living with.
- Fix a portion to protect your budget from rate rises
- Keep a variable portion for extra repayments and offset
- Stagger fixed terms if you want to spread out rate risk
Things to consider before you decide
Nobody can reliably predict where rates will go, including us. Rather than trying to pick the market, think about your own situation.
- Could your budget handle a rate rise of 1% to 2%?
- Do you plan to sell, move or refinance in the next few years?
- Do you want to use an offset account or make large extra repayments?
- What happens to the rate when the fixed term ends? It usually reverts to a variable rate, which may be higher than you could get elsewhere
Worked example
A 60/40 split on a $520,000 loan
Here is an illustrative comparison of a fully variable loan, a fully fixed loan and a 60/40 split on $520,000 over 30 years, principal and interest. Example rates: 5.59% p.a. fixed and 5.89% p.a. variable. These are not current rates.
| Fully variable at 5.89% | $3,080.98 a month |
| Fully fixed at 5.59% | $2,981.93 a month |
| Split: $312,000 fixed at 5.59% | $1,789.16 a month |
| Split: $208,000 variable at 5.89% | $1,232.39 a month |
| Split total | $3,021.55 a month |
In this example the split sits between the two, costing about $40 a month more than fully fixed, while keeping $208,000 variable for extra repayments and an offset account. If rates fell, the variable portion would benefit; if they rose, 60% of the loan would be protected for the fixed term.
Illustrative only. Figures are examples, not a quote or a recommendation.
Common mistakes
- Fixing the whole loan and then needing to sell or refinance, triggering break costs
- Choosing fixed or variable based only on a prediction about rates
- Not checking whether a fixed loan allows offset or extra repayments
- Letting a fixed term expire and rolling onto a higher revert rate without reviewing
- Assuming a lower fixed rate always means paying less overall
Frequently asked questions
Next steps
Talk to franklenn FINANCE
Weighing up fixed, variable or a split? Book a free discovery call with franklenn FINANCE and we will compare options from our lender panel against your budget and plans.
This guide is general information only and does not consider your objectives, financial situation or needs. It is not financial, tax or legal advice. Lender policies, rates and government schemes change. Please speak with us, and with your accountant or solicitor where relevant, before acting.