Fixed vs Variable: How to Choose the Right Rate

The short answer

A fixed rate gives you certainty. A variable rate gives you flexibility. Neither is always better. The right choice depends on your budget, your plans, and how much flexibility you need.

And you don’t have to choose just one. A split loan lets you have some of both.

How each works

• Fixed rate: your rate is locked for a set term, usually one to five years. Your repayments stay the same, whatever happens to rates.
• Variable rate: your rate can move up or down at any time, usually following the Reserve Bank’s cash rate, though lenders can also move independently.

How fixed rates are priced: lenders set fixed rates based on where they expect rates to go over the fixed term. As at November 2026, fixed rates are typically higher than variable rates, reflecting the uncertainty of likely future rate increases. When rate cuts are expected, the opposite can happen.

Side by side

	Fixed	Variable
Repayments	Stay the same for the fixed term	Can rise or fall
Extra repayments	Usually capped, for example $10,000 a year	Usually unlimited
Offset account	Limited, partial or unavailable at many lenders	Usually available, often 100%
Redraw	Often unavailable during the fixed term	Usually available
Exiting early	Break costs may apply	Generally no break costs
Best for	Budget certainty	Flexibility and paying the loan off faster

Break costs explained

If you sell, refinance or pay off a fixed loan early, the lender may charge a break cost. It covers what the lender loses when you exit a rate it locked in for you.

• When rates have fallen since you fixed: break costs can be large, because the lender can only re-lend your money at today’s lower rates.
• When rates have risen: break costs may be small, or nothing at all.

Example: Nina fixes $500,000 at 6.00% for three years. A year later, comparable fixed rates have dropped to 5.00%, and she wants to sell. With two years left, her break cost could be roughly $10,000. Each lender calculates it differently, so always ask for a quote first.

Rate lock, and when your fixed term ends

• Rate lock: fixed rates can change between when you apply and when you settle. For a fee, many lenders let you lock in the rate at application, so it’s protected until settlement.
• When the fixed term ends: your loan usually rolls onto the lender’s revert rate, which is often higher than the rates offered to new customers. Review your options a few months before the fixed term ends, so you can choose to refix, go variable, or refinance.

Split loans: the best of both

A split loan divides your loan into a fixed portion and a variable portion. You get repayment certainty on part of the loan, and flexibility on the rest.

Example: Leo borrows $600,000. He fixes $360,000 for certainty on most of his repayments, and keeps $240,000 variable with an offset account for his savings and bonuses. If rates rise, most of his loan is protected. If he gets ahead, he can pay down the variable portion without break costs.

The split doesn’t have to be 50/50. We’ll help you set it based on your budget and how much flexibility you need.

Fix for certainty, not to beat the bank

Nobody can predict interest rates reliably, including economists and banks. Fixing in the hope of beating future rate moves is a gamble.

A better question is: what do you need? If stable repayments would help you sleep at night, or your budget is tight, fixing part or all of your loan can make sense. If flexibility matters more, such as paying the loan down faster or using an offset, variable may suit you better.

Not sure whether to fix?

With access to over 40 lenders, our team of lending specialists can compare fixed, variable and split options side by side, and remind you to review before your fixed term ends.

Book a chat · Next lesson: Offset vs redraw

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General information only. This article does not consider your objectives, financial situation or needs and is not credit, financial or tax advice. Lender policies and rates vary and change regularly. Examples are illustrative and rates are hypothetical. Seek advice from a licensed credit adviser before acting. Insight Property Finance.