In short: A fixed rate gives you certainty: your repayments stay the same for a set term, usually one to five years. A variable rate gives you flexibility: offset accounts, extra repayments and no break costs if you sell or refinance. With the RBA lifting the cash rate to 4.85% on 3 November 2026, a split loan is one way to get some of each.

The RBA lifted the cash rate to 4.85% on 3 November 2026. That’s its fifth rise this year and the highest level since 2008. If you’re buying or refinancing right now, fixed or variable is probably the first question on your list.

There are many different home loan options available including your repayment type and the lender you borrow from. Choosing between a fixed or variable rate is one of the most important loan decisions you’ll need to make and will come down to your personal preferences.

Here’s what you need to know about fixed rate and variable rate home loans and the pros and cons of both choices.

Fixed rates

A fixed rate is a defined period on a home loan where the interest rate remains unchanged.

Once the borrower agrees to the fixed interest rate offered by the lender, the rate will be locked in for the ‘fixed rate term’ which typically lasts for 1-5 years.

This means your repayments stay the same for that period. At the end of the term, the borrower can either switch to a variable rate or commit to a new fixed rate agreement.

What are the advantages of fixed rates?

• Fixed rates provide certainty over your mortgage repayments. If you’re concerned about your ability to afford your mortgage if rates rise, a fixed rate ensures that your repayments will not change for the agreed-upon period.

• A fixed-rate home loan makes it easier to budget and organise your spending. Knowing how much your mortgage repayments will cost each month allows you to plan out the rest of your expenditure accordingly.

• If rates rise during your fixed term, you stay on your fixed rate until the term ends.

What are the disadvantages of fixed rates?

• Fixed-rate home loans offer less flexibility and features than a variable rate. This includes restrictions or fees for options like offset accounts, additional repayments or a redraw facility.

• If interest rates fall, you won’t get the benefits. As your fixed rate is set in stone, you may end up with a higher rate if variable rates fall around you.

• If you wish to refinance or opt out of the fixed-rate term prematurely, you may be subject to expensive break costs.

Variable rates

A variable rate is a rate on a loan that fluctuates over time and will rise or fall based on the current economic climate.

On a variable rate, your repayments change whenever your lender moves its rate. Lenders usually follow the RBA, but they don’t have to. A variable rate period will last for the duration of the home loan unless a fixed-rate term is agreed to.

What are the advantages of a variable rate:

• A variable rate offers you flexibility and allows for a wider range of repayment options and features than a fixed rate. This often includes the ability to make additional repayments, set up an offset account and access surplus funds from your mortgage.

• If rates fall, your repayments fall too.

• A variable rate home loan makes it much easier to refinance. If you find a more competitive rate or home loan option at another lender, you won’t have to pay break costs to make the switch.

What are the disadvantages of a variable rate:

• You have less certainty over your mortgage repayments. As your mortgage is subject to changing interest rates, a variable rate loan makes it difficult to predict repayment sizes in the future. This can make it much harder to organise your budget and plan your cash flow from month to month.

• If rates rise, you might find it challenging to meet the larger mortgage repayments.

Split rate

A split loan allows you to have the best of both worlds. It involves having a portion of the loan on a fixed rate and the other portion on a variable rate.

This is when a lender offers the option to split your home loan into two different loans, giving you the security of a fixed rate with the flexibility and features of a variable.

The split loan approach allows you to utilise an offset account or additional mortgage repayments, whilst hedging your bets if interest rates rise or fall.

Should I choose a fixed rate or variable rate for my home loan?

Which do you value more: certainty or flexibility?

Whether a fixed or variable home loan is right for you will ultimately come down to this question.

A lot of borrowers will try to predict where interest rates are heading and make a decision accordingly. This is not necessarily the best strategy.

At any given point in your home loan, fixed rates can be the same, higher or lower than the variable. Banks have expert economists who forecast future rates and these predictions are factored into the fixed rates they offer. If fixed rates are higher than variables, it is based on the lender’s assumption that rates will go up.

As a result, the difference between the fixed and variable rates will likely even out over the course of your loan.

This is why we generally advise our clients not to gamble and recommend they make a decision based on their current life needs.

Homeowners who might be starting a family, changing jobs, running a small business or need financial consistency may be better suited to the security of fixed rate loans.

Here’s what most people miss: when a fixed term ends, you roll onto the lender’s revert rate, which is often well above what it offers new customers. Put the end date in your calendar and review your loan two or three months before it.

Want to see what fixed, variable or split looks like on your loan? Run it through our repayments calculator, then book a chat with Gav.

Frequently asked questions

Can I make extra repayments on a fixed rate loan?

Usually only a limited amount each year, set by the lender. Go over it and you may pay break costs. Variable loans generally let you pay extra without limits.

What are break costs?

A fee some lenders charge if you pay off, refinance or switch a fixed loan before the term ends. It can be large when rates have fallen since you fixed.

What is a split loan?

One loan divided into a fixed part and a variable part. You get some certainty on repayments and keep an offset account or extra repayments on the variable part.

Last updated: 4 November 2026.

General information only. This article does not take into account your objectives, financial situation or needs, so consider whether it is appropriate for you and seek personal advice before acting. Elephant Financial Pty Ltd trading as Elephant Advisory is an authorised credit representative (ACR 487962) of Yellow Brick Road Aggregation Pty Ltd (formerly Vow Financial Pty Ltd) (ABN 66 138 789 161), Australian Credit Licence 390261.