Fixed vs. Variable Home Loans: Which Is Right for You?
Understanding Fixed and Variable Interest Rates
One of the most common home loan decisions buyers face is choosing between fixed and variable rates. Each option impacts your repayments, loan flexibility, and long-term costs—so knowing how they work can help you make an informed choice.
Beyond these rates, another important factor in mortgage pricing is the Reserve Bank of Australia (RBA) cash rate and how banks set their standard variable rates.
How the RBA Cash Rate Affects Home Loans
The Link Between the RBA & Lender Rates
The RBA reviews Australia’s cash rate regularly, usually adjusting it in 0.25% increments to manage inflation and economic growth.
But here’s the catch: Banks don’t always pass on the full RBA rate change to customers. That means your mortgage interest rate might not drop as much when the RBA lowers rates.
📌 Notably, banks often cite offshore funding costs as a reason for keeping interest rates higher than expected.
Fixed vs. Variable Home Loans
Variable Rate Home Loans
A variable-rate mortgage moves up or down with the RBA’s cash rate, meaning your repayments can fluctuate over time.
🔹 Pros:
✅ Flexibility—most variable loans allow extra repayments without penalty
✅ Offset accounts—can reduce the interest you pay
✅ Lower break fees—if you refinance or pay off your loan early
🔹 Cons:
❌ Interest rate uncertainty—monthly repayments may increase if rates rise
❌ Budgeting challenges—harder to predict future mortgage costs
Fixed Rate Home Loans
A fixed-rate mortgage locks in your interest rate for a set period, typically between 2-5 years.
🔹 Pros:
✅ Predictability—stable repayments make budgeting easier
✅ Protection—shielded from interest rate hikes during the fixed term
🔹 Cons:
❌ Limited flexibility—extra repayments may be restricted
❌ Break fees—high penalties if you exit the loan early
❌ Market risk—if interest rates fall, you won’t benefit from lower repayments
Combining Fixed & Variable Loans
The Best of Both Worlds?
Many borrowers choose a split home loan, combining both fixed and variable rates:
📌 Benefits:
✅ Flexibility to make extra repayments on the variable portion
✅ Stability with fixed repayments on part of the loan
This strategy works well for those who want rate certainty but also flexibility to pay down their mortgage faster. If you do opt for a portion of your loan as variable then you could link an offset account, read our blog on offset accounts here
What Should You Do?
How to Decide Between Fixed & Variable
It’s hard to predict interest rate movements, but staying informed through economic forecasts and mortgage lender comparisons can help guide your decision.
At CBM Mortgages, we analyse the latest fixed and variable rates from multiple lenders, ensuring you get the best possible loan for your financial goals.
📞 Contact us today for a free home loan consultation!
Read our blog post on different types of loan here and also read another blog posy genuine savings here
Disclaimer
This article provides general information only and does not constitute financial advice. Always consult a qualified financial advisor or mortgage broker to assess your personal situation before making any financial decisions.
Written by Craig McDonald 14/06/2024
