Fixed vs variable home loan rates: a decision framework

Choosing between a fixed and a variable rate is a decision about loan structure — repayment certainty versus flexibility — not a bet on where interest rates go. A fixed rate holds your repayments steady for a set period but can carry a potentially large break cost if you end it early and typically comes with fewer features; a variable rate moves with the market but typically comes with more features — Moneysmart notes offset accounts are generally available with variable rate loans — and is usually easier to switch out of later; a split loan takes some of each. Feature availability varies by lender and product.

Key points:
- The decision is structural, not predictive: fixing buys certainty over your repayments for a set period, staying variable buys flexibility. Neither is inherently better — it depends on your budget, your plans and the specific product’s terms.
- Break costs are the key asymmetry. Ending a fixed rate loan early — refinancing, selling, or repaying ahead of contract limits — can trigger a break fee that may be very high, generally higher the further rates have fallen since you fixed. Per [ASIC Regulatory Guide 220](https://download.asic.gov.au/media/seubdgt4/rg220-published-09-november-2023.pdf), a break fee is not charged for variable rate loans.
- The law limits break costs: under the National Credit Code, an early termination or prepayment fee is unconscionable if it exceeds a reasonable estimate of the lender’s loss, and a court may annul or reduce it. AFCA can also make its own assessment of the calculation.
- Break-cost quotes move with the lender’s cost of funds — which can vary significantly day to day — so AFCA encourages borrowers to obtain regular, up-to-date quotes before acting.
- Feature differences are typical, not universal: [Moneysmart](https://moneysmart.gov.au/home-loans/choosing-a-home-loan) notes offset accounts are generally available with variable rate loans, and fixed loans may limit extra repayments — always check the specific product’s terms.
- A split (partially-fixed) loan puts part of the balance on a fixed rate and the rest on variable, in proportions you choose — partial certainty while keeping variable-side flexibility, subject to the product.
- Context as at 12 July 2026: the RBA cash rate target is 4.35%, after increases effective 4 February, 18 March and 6 May 2026 and a hold at the 16 June 2026 meeting — historical context only, not a prediction of future moves.