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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What our customers are saying

Leanda Cawdry
June 8, 2024
Very pleased with the outcome of this process, Michael Parsons and his team at UNO were helpful, communicative, and took all the stress out of the process of finding me a refinance deal that met my needs. Would definitely recommend Michael and UNO, and I already have!
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Glen Matthews
May 29, 2024
Regarding UNO Home Loan services. I had great experience with uno home loans, Michael parsons was my broker for UNO Home Loans we had excellent communication throughout the whole home loan application. If I had any questions on home loan application which were many were answered in great detail. He had the time to assist me in filling out endless application forms at anytime through the day or night which made the application process stress free. So I would strongly recommend Michael parsons from UNO Home Loans to try his services you will not be disappointed. Thanks to Michael parsons I have the lowest home loan interest rate I could ever hope for which I particularly ask for. It’s was a pleasure working with him. And will be using his services in the near future.
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Gillian Anderson
May 28, 2024
Thank you to Michael and UNO for their help in securing our home loan. I like the way they break everything down in simple terms to ensure that you can make the right decision. Michael was polite and very patient to help us get things across the line. We are now sitting in our first home away from rental circus. Can't recommend them enough. Thanks Michael and thanks UNO
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Andy Song
May 17, 2024
Amy has been absolutely wonderful as a broker. I would not hesitate one bit in recommending her services.
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Troy H
May 13, 2024
Scott Wilkinson did a great job as my broker. He was very patient and always happy to answer my numerous questions throughout the considerable period of time that it took to secure a suitable property. Would certainly recommend Scott and the team at UNO for anyone seeking a broker.
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Elvin Singh
May 10, 2024
First time I have used a Broker and I must say Andrew Wyers and his team were amazing to work with and handled my refinance from a Big4 bank. He was able to understand my needs and find a lender that will be able to help me grow my investment portfolio. Andrew and his team kept me updated as part of my refinance journey and made the process super easy and I was able to refi to new lender in under 2 weeks. Would highly recommend Andrew.
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Nadine Steffens
April 19, 2024
Scott and the team at Uno are absolutely 💯 amazing. I don't think I could have done my loan on my own. They are highly motivated and I do recommend them.
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April 16, 2024
Dealing with Scott Wilkinson was an absolute delight. Scott is tenacious, hard working and readily available. He made a very stressful process for me and my partner smooth sailing. Would highly recommend.
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Liam Sugiono
April 15, 2024
Amy and her team were efficient and knowledgeable as our broker. They were easily contactable and ensured all our needs were met.
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Mike Vincent
April 10, 2024
Andrew is the best broker I have worked with and one of the few people who understands the investment journey from both a personal and professional standpoint. Andrew is an asset to anyone from a first home buyer to a seasoned investor.
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Yu Su
April 9, 2024
Amy was very help and quick respond when I have questions. Really recommended.
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John Cahill
March 7, 2024
Scott Wilkinson was my broker last year when I sought finance for a new property investment and refinance for my property port folio. He was an absolute delight to work with. He was always professional, on time and always available to talk at a moment's notice to discuss my credit options and give well considered advice; usually this was very much after-hours due to my work commitments during the day. He was always happy to talk. I had not used a mortgage broker in a long time opting to do the re-financing myself. This was primarily due to disappointing experiences I'd had with mortgage brokers in the past. However with the increasing complex nature of dealing with credit providers, I could see that I needed a good advocate to act on my behalf for this particular refinance. In all honesty I did not hold much hope that in the current credit environment I would be able to secure the finance I required for the new property investment I was wishing to secure. Scott found a way however and was able to secure the finance along with the refinance of my portfolio. I have since referred friends to Scott and I know they have been very happy with his work. He is ideal for property investors who have busy day-jobs and need someone who understands property investment strategy and is able to tailor credit advice and options to their needs. Scott provides this advice and information in a way that is clear and concise. He kept me up to date continually during the application process. He made what could have been a very stressful and frustrating process easy and straightforward. I could not recommend Scott and the team at UNO Home Loans more highly. They are all a delight.
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