Fixed Rate vs. Variable Rate
With expectations of rate cuts in 2025, sticking with a variable home loan might seem like the obvious choice. But not so fast—locking in your rate could have its own perks, including the potential to secure a lower rate right now.
Home loans come in all shapes and sizes, but one of the biggest decisions you’ll face is whether to go with a fixed or variable interest rate.
Right now, some lenders are actually offering lower fixed rates compared to their variable rates. So, which option makes the most sense? Let’s break it down.
Variable-Rate Home Loans
A variable-rate loan means your interest rate moves up or down in line with market rates. If the Reserve Bank of Australia (RBA) raises the official cash rate, your loan rate (and your repayments) will almost certainly go up. On the flip side, if the cash rate drops, your interest rate should decrease, meaning lower repayments.
The big trade-off with a variable rate is uncertainty—you need to be comfortable with the possibility that your repayments could change over time. But in return, you get more flexibility and features, such as:
Redraw facility – Access extra repayments you’ve made if needed.
Offset accounts – Reduce the interest you pay by offsetting your loan balance with savings.
Extra repayments – Pay off your loan faster without penalty.
Fixed-Rate Home Loans
A fixed-rate home loan locks in your interest rate for a set period (typically 1–5 years). This means your repayments stay the same, making budgeting much easier. If rates go up, you’re protected—but if they go down, you won’t benefit from lower repayments.
The good news? Fixed-rate loans have come a long way and now offer more flexibility than before. Many lenders allow extra repayments (up to a certain limit), redraw options, and even offset accounts.
One thing to watch out for: ‘break’ fees. If you decide to exit a fixed loan early—say, to refinance at a lower rate—you could face hefty penalties. These fees can be complicated, but if rates have dropped significantly since you locked in, you might be looking at costs in the tens of thousands. That’s why it’s worth talking to us before making any decisions.
Are Fixed-Rate Loans More Expensive?
Here’s where things get interesting. Right now, some lenders are offering lower fixed rates than variable rates. Why? Some banks anticipate the RBA will cut rates in the next couple of years and are pricing this expectation into their fixed-rate loans to make them more attractive.
For example, Macquarie Bank’s 2-year fixed rate is currently 5.69%, compared to its variable rate of 6.14%. Whether fixing now is the right move depends on how soon and how often the RBA actually cuts rates.
A Split Loan: The Best of Both Worlds?
Can’t decide between fixed and variable? A split loan lets you divide your mortgage between both options—say, 40% fixed and 60% variable. This way, you get the certainty of a fixed rate while still benefiting from the flexibility of a variable loan.
It’s a way of hedging your bets while enjoying the perks of both loan types.
Still Unsure? Let’s Chat!
If you’re wondering which option is right for you, let’s talk. While we don’t have a crystal ball, we can help you assess your situation and figure out which loan structure aligns best with your goals. Get in touch today!
Disclaimer: This article provides general information and should not be considered financial or tax advice. It does not take into account your personal circumstances. Always seek professional advice before making financial decisions. This content is protected by copyright laws and cannot be modified, reproduced, or republished without prior written consent.
