Fixed vs variable rates: how to choose what's right for you

Whatever the Reserve Bank does next, property owners face a recurring dilemma: should I lock in a fixed rate, or ride the waves with a variable rate?

The answer depends on your financial situation, how much flexibility your budget has, and your tolerance for rate changes. Here's how both options work to help you decide.

Option 1: Fixed interest rates

A fixed rate locks your interest rate in place for a set period — typically one to five years. Whatever happens in the wider market during that time, your repayments stay the same.

• The pros: budget certainty. You know exactly what your mortgage will cost every month, which makes planning easier.
• The cons: less flexibility. If market rates fall, you miss out on the savings. Fixed loans also often limit extra repayments and may not offer a full offset account — and breaking the loan early can trigger break costs.

Option 2: Variable interest rates

With a variable rate, your interest rate can move up or down at the lender's discretion, usually following changes to the official cash rate by the RBA.

• The pros: more flexibility. Variable loans usually allow unlimited extra repayments and a full offset account — a savings account linked to your mortgage that reduces the interest you pay.
• The cons: rate movements. If rates rise, your lender will likely increase your rate too, and your repayments go up.

The verdict: which one fits your life?

• Choose fixed if you have a tight household budget, little room to absorb rate rises, or find rate changes stressful. The peace of mind of fixed repayments is often worth it.
• Choose variable if you value flexibility, plan to pay your loan down faster with extra repayments, or want to make full use of an offset account.

Can't decide? Consider a split loan

You don't have to choose just one. You can split your loan — for example, 50% fixed and 50% variable. That gives you repayment certainty on one portion while keeping offset and extra-repayment flexibility on the other.

Want to see what a split loan looks like for your mortgage?

We can model the numbers for you. Book a free assessment with our team and we'll find the balance of certainty and flexibility that suits your finances.