Fixed vs variable rate home loans: what the numbers actually show

How fixed rate home loans work

A fixed rate home loan fixes the interest rate for an agreed period. Available terms, fees, repayment arrangements and what happens when the fixed period ends depend on the contract. A fixed rate does not mean every loan cost is fixed.

At the end of the fixed term, the loan rolls over to the lender's standard variable rate (sometimes called the revert rate) unless you proactively refinance or fix again. Many borrowers are surprised to find their revert rate is higher than competitive variable rates.

What's typically included with a fixed rate loan

• Certainty of repayments for the fixed period
• Protection from rate rises during the term
• Extra-repayment limits and any break costs depend on the written product terms

What's typically not included

• Offset accounts (most fixed loans don't offer full offset — though some lenders now offer partial offset on fixed rate products)
• Extra repayments subject to product terms
• Redraw on extra repayments made during the fixed term
• The ability to exit without break costs

How variable rate home loans work

A variable home-loan rate can rise or fall. Lenders decide whether, when and how much of an RBA cash-rate change is reflected in their variable rates, taking account of funding costs and product terms. An RBA decision does not automatically or immediately change your repayment.

What's typically included with a variable rate loan

• A full or partial offset on some products; compare fees and written terms
• Extra repayments subject to product terms
• Redraw where offered, subject to product access conditions
• Flexibility to refinance or sell without significant break costs
• A possible rate reduction if and when the lender reprices

What's not guaranteed

• Rate stability — your repayments can increase at any time
• Whether, when or how much your lender passes through an RBA cash-rate change

The key differences — a direct comparison

Worked rate and repayment scenarios

Illustration only: $600,000 principal, 30-year principal-and-interest loan, monthly repayments, no fees or offset; 6.14% fixed for two years, then 6.39% for the remaining 28 years. Rates are assumptions, not current offers.

Two years fixed, then variable

At 6.14%, the monthly repayment is $3,651.49. Over 24 months, scheduled repayments total $87,635.65 and the remaining balance is $585,191.52.

Refinancing that balance at 6.39% over the remaining 28 years gives $3,744.87 per month. Total repayments across both periods are $1,345,910.67, excluding fees.

Constant variable rate comparison

At a constant 6.39% for all 30 years, repayments are $3,749.11 monthly and $1,349,678.78 in total. The fixed-then-variable scenario pays $3,768.11 less under these assumptions because its initial rate is lower. Future variable rates are unknown.

Higher-rate sensitivity

If a new $600,000, 30-year loan instead started at 7.14%, its payment would be $4,048.39. This comparison changes the starting rate; it does not simulate an increase part-way through an existing loan.

Break-cost arithmetic illustration

$600,000 × (6.14% − 5.64%) × 10/12 = $2,500.00, not $25,000. This simplified multiplication is not a lender break-cost formula: actual quotes use lender-specific funding, balance, timing and discounting rules. Obtain a written break-cost quote.

The risk of getting it wrong — break costs explained

Break costs (also called economic costs or early repayment costs) apply when you exit a fixed rate loan before the fixed term ends. This includes:

• Selling the property
• Refinancing to a different lender
• Switching from fixed to variable with the same lender
• Paying off the loan entirely

Break costs depend on the lender’s contract and calculation, including funding-rate changes, remaining term, balance and payment timing. A cash-rate change alone does not determine the charge; obtain a dated written quote.

Always ask your lender for a break cost quote before deciding to exit a fixed loan.

Split loans — the middle ground

A split loan divides your borrowing between fixed and variable components. For example, on a $600,000 loan you might fix $400,000 and keep $200,000 variable.

This approach gives you:

• Certainty on the fixed portion (known repayment amount)
• Flexibility on the variable portion (offset account, extra repayments)
• Reduced exposure to break costs if you need to exit or refinance
• Different exposure for each component; a variable-rate reduction depends on lender repricing

Split loans are popular in Australia precisely because they offer a compromise when the rate outlook is uncertain. Ratios such as 50/50 or 60/40 are illustrations; available splits and conditions depend on the product.

What the current rate environment means for your decision

The RBA cash rate is 4.60%, effective 30 September 2026 and checked on 14 October 2026. Mortgage rates are lender-specific. Compare current quotes, fees and loan terms rather than treating a historical market range as a current offer.

Compare dated written fixed and variable quotes. A fixed rate can be higher or lower than a variable quote; pricing is not a reliable forecast of future rates.

Key considerations in the current environment:

• The cash rate can rise, fall or remain unchanged; future decisions and lender pricing are uncertain.
• If the lender raises its variable rate, repayments can rise; the fixed-rate component retains its contracted rate during the agreed period
• Fixed rates may price below current variable rates if the market expects rate cuts further out
• Locking in now at a fixed rate protects against the scenario where the hiking cycle continues

Which type suits which borrower?

Consider a fixed rate if

• You are on a tight budget and need certainty about your monthly repayments
• You believe rates are likely to rise during your ownership period
• You won't need to sell, refinance, or make large extra repayments within the fixed term
• You don't use or don't value an offset account

Consider a variable rate if

• You have a significant savings buffer or plan to use an offset account actively
• You want the flexibility to sell or refinance without break costs
• You want extra-repayment flexibility, subject to the particular product’s limits and fees
• You believe rates are likely to fall or stay flat

Consider a split loan if

• You want certainty on part of your repayments but flexibility on the rest
• You have significant savings that would benefit from an offset account
• You're unsure about the rate direction and want to hedge your exposure

Key takeaways

• Fixed-rate features, extra-payment limits, offset availability and early-exit costs depend on the product; check the contract instead of assuming flexibility
• Variable-rate features depend on the product; repayments can increase if the lender raises its rate
• Variable borrowers benefit from a rate reduction only if and when their lender reprices; fixed rates remain unchanged during the agreed period.
• Break costs depend on the lender’s calculation and funding rates; obtain a written quote before exiting a fixed term.
• Split loans offer a genuine middle ground and are worth considering if you want both certainty and flexibility
• There is no universally "right" answer — the best choice depends on your budget certainty needs, flexibility requirements, and view on rate direction

Sources

RBA — Cash Rate and Interest Rates

ASIC Moneysmart — Choosing between fixed or variable rate

Frequently asked questions

What happens to my fixed rate loan when the RBA changes rates?

An RBA decision does not itself change your contracted fixed rate during its agreed period. Fees, repayment arrangements and other contract conditions still need checking.

Can I make extra repayments on a fixed rate loan?

Fixed-rate extra-repayment limits depend on the product. Ask for the written limit and break-cost terms before paying extra.

What is a comparison rate and should I use it to compare fixed and variable loans?

A comparison rate includes fees and charges in addition to the interest rate, giving you a more complete picture. Check the advertised comparison rate’s stated loan amount, term and included fees. Your actual amount, term and use of features can produce a different cost; compare the full fee schedule as well.

Should I fix my rate when rates are falling?

A fixed component keeps its agreed rate during the contracted period. Variable rates change only if and when the lender reprices. Compare dated fixed and variable quotes, fees, flexibility and repayment risks; future rates are uncertain and a cash-rate cut does not guarantee a lower variable offer.

How do I know what break cost I'll face if I exit my fixed loan?

Request a dated written break-cost quote from your lender. Its contract and calculation determine the charge; funding rates, balance and timing can matter. Confirm the quote’s validity rather than treating an RBA cash-rate change as a break-cost formula.

Is it better to fix for 1, 2, 3, or 5 years?

Shorter fixed terms give you more flexibility to reassess sooner. Longer fixed terms provide certainty for longer but lock you in. Compare the fixed terms actually offered to you, their total cost and the restrictions that apply.