Fixed rate vs variable rate home loans: which is best for you?

Fixed rate vs variable rate home loans: which is best for you?

Discover what your choice of mortgage options means for you.

Shelby Waugh
Shelby Waugh 09 Feb 2023 ・ 2 min read

Australians have seen many changes in recent times – including to their home loans. With many mortgage holders expected to switch from a fixed rate to a variable rate this year, you might be wondering what it means for you.

Here are the biggest differences between variable rate and fixed rate home loans.

Fixed rate home loan

A fixed rate home loan is a mortgage where the interest rate is locked in for a set time – usually between one to five years.

Your expected monthly payment won’t change during this period, making it a convenient option. Predictable repayments can make it easier to plan your finances into the future.

Keep in mind that because your interest rate is locked in, you won’t reap the benefits if your lender drops their rates during your fixed period.

Variable rate home loan

A variable rate home loan is a mortgage where the interest rate changes based on market conditions.

Variable rate loans can offer greater flexibility, as they often come with options for an offset account and redraw facilities. You can also enjoy a lower minimum repayment when interest rates drop.

However, interest rates can shift at any time so it’s important to be prepared to handle changing monthly repayments.

Split rate home loan

If you want a bit of each option, some lenders can split your home loan interest rate. This means part of your mortgage is on a fixed rate and part is on a variable rate.

You can choose which way you’d like to divide it – whether it’s a straight 50:50 split or even 70:30.

Which home loan is best for you?

If you’re trying to decide which mortgage type is the right choice for you, it’s best to talk to an expert as soon as you start considering a home loan.

A mortgage broker, such as a Liberty Adviser, can look at your circumstances and help you find the best lending solution to suit you.

Shelby Waugh
Shelby Waugh Author
Shelby Waugh is a financial writer at Liberty, with a passion for social justice and improving financial literacy. She enjoys going to the gym, watching movies with her cat, and is dedicated to finding the best doughnuts in Melbourne. Shelby has a Bachelor of Journalism and Marketing from the Queensland University of Technology.