Fixed vs variable home loan rates, explained. What’s the difference and which is better?

Whether refinancing or taking out a home loan for the first time, acquiring a competitive rate could save you thousands of dollars. But should you go fixed, variable, or even a combination of the two?

Fixed vs variable home loan rates, explained. What’s the difference and which is better?

Whether refinancing or taking out a home loan for the first time, a competitive rate could save you thousands of dollars. But should you go fixed, variable, or even a combination of the two?

Australians are refinancing at record rates amid recent RBA interest rate increases. The value of owner-occupier refinancing between lenders rose to a record 9.1% in November 2022, according to the Australian Bureau of Statistics (ABS).

The average variable rate in December 2022 was 5.45% while fixed rates were 5.81%, according to Mozo.

That’s a difference of about $115 a month or $40,500 across a 30-year $500,000 mortgage. So, choosing the right interest rate on your loan is worthwhile.

What’s the difference between fixed and variable home loans?

Fixed and variable refer to the two major types of home loan rates on the market in Australia.

The difference between the two comes down to the interest rate.

With a fixed rate, the interest rate remains set in place of ‘fixed’ for a specified period.

For a variable rate, the interest rate can fluctuate, going up or down depending on broader interest rates and your lender.

You can also combine the two into a split rate home loan, potentially allowing you to take advantage of the features of both.

A split rate divides your loan into multiple parts which are financed at both fixed and variable rates. They offer a combination of mortgage features.

How does a fixed rate home loan work?

A fixed rate home loan is one in which the interest rate you pay is locked in place or ‘fixed’ for a set period.

This period varies but is typically between one and five years.

When you take out a fixed rate, you are guaranteed that the interest rate you pay month to month will remain the same and will not fluctuate.

At the end of a fixed term, you can choose to either move into a variable rate home loan, or refinance to either a split rate home loan or another fixed rate home loan.

You can typically break out of a fixed rate home loan early if you wish, although it is likely your bank or lender will charge you a fee.

What are the pros and cons of a fixed rate mortgage?

Benefits of fixed interest rate

  • Protection from rate rises - If interest rates go up, your repayments will remain consistent, protecting you from rate rises throughout your fixed term.
  • Certainty in your repayments - Knowing how much your mortgage will cost you each month can give you the ability and peace of mind to budget for other expenses.
  • Potential to save on fees and charges - Variable home loans come with various extras, but these can be expensive, so if you’re happy without them, you can avoid some fees with a fixed rate.

Potential drawbacks fixing your interest rate

  • Lack of features - The features of a variable rate home loan can be convenient. For instance, an offset account can be used to lower the balance of your home loan while accessing funds for everyday banking. Some fixed-rate loans do come with a redraw facility, but you need to check with your lender to see if this is available.
  • Potential to miss out on rate cuts - If interest rates fall, you will not get the benefit of this if you have locked in your rate.
  • Inability to make additional repayments - Variable home loans generally allow you to make additional repayments to pay off the balance faster, but one of the trade-offs for the certainty of a fixed rate is that you may not be able to do this.

Which one is for me?

Deciding between a fixed, variable, or split rate could save you thousands of dollars in repayments amid rising interest rates.

If interest rates are expected to rise, a fixed rate may be appealing as your interest rate could be less than the current cash rate. If they fall, though, a variable might be the way to go.

Choosing the ‘correct’ rate depends greatly on your circumstances, though. It helps to shop around to find the best rate.

Refinancing or taking out a new loan? UNO can help you compare from over 20 lenders to find the best deal today.


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November 14, 2024
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November 3, 2024
Mike Parsons went above and beyond to ensure that our refinancing journey was painless and successful. He was communicative, accessible (even working while on holidays!), and his knowledge of the systems at play meant that he picked up on things that other brokers missed. Would 100% recommend Mike, and will definitely be back next time we need a broker.
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October 31, 2024
Mike Parsons handled our refinance of our home loan with ease and a depth of knowledge that ensured we got the best deal possible for our situation. We didn't have an easy one to solve for with my husband being self employed and we were consolidating finances as well for a car loan. But Mike handled it all for us and once we had provided him with all the documents we literally didn't have to do a thing after that, it was so easy and so quick we are super happy with the experience! Top notch! Highly recommend!!
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October 10, 2024
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October 8, 2024
Mike Parsons made it possible for us and the in laws to get 2 pretty complicated home loans. He helped us through everything and we'd be happy to use Mike and the team again for anything we needed. Thanks again!
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October 2, 2024
I have gone through 6 different mortgage brokers prior to meeting Andrew Wyers. He is the most patient mortgage broker I’ve encountered and also the most knowledgable about the bank’s lending process and products available. It took me 1 year to find a house I was happy with and Andrew was always there to assist with any issues or questions I had; he always return my phone call, even on the weekends or when his away on holidays. The loan process was smooth and I had no complications. The process with Andrew was again nice and easy, he took the time to find and put together the right package that was suited to my situation. I have recommended Andrew to my family & friends and everyone have been grateful and completely satisfied with his service.
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September 23, 2024
I had not dealt with Scott or UNO before finding them on the internet. Even as an Australian citizen living and working overseas, I knew obtaining a loan would be difficult. However, Scott went above and beyond what I expected from a mortgage broker. I genuinely don’t think you could find another company that works as hard as they did to get my home loan approved. I cannot recommend them highly enough. Everyone I dealt with at UNO were extremely professional and helpful. If you are looking for a broker, you would be mad not to give them a go. Thanks to Scott Wilkinson, Dalby Bajwa, Jena Lasquite and Andrew Pacini. Shaun.
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