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Should I choose a fixed or variable rate home loan? We’ve covered what you need to know about finding the right interest rate.

What does history tell us?

When it comes to choosing a type of interest rate for your home loan, it’s hard to know whether a variable or fixed rate will leave you better off in the long run.

According to Canstar analysis, history shows that borrowers have about a 50:50 chance of choosing the right interest rate. Over the past 20 years, based on the average month-by-month variable rate and the three year fixed rate of the big four banks, there were 116 months when borrowers paid less over three years with a fixed rate and 127 months when borrowers with a variable rate paid less.

Why would you choose variable?

  • You utilize all your loan features and they help you get ahead on your home loan. You keep your own funds working for you as long as possible by having all your pay paid into your home loan or offset account. You schedule your bills to be paid on the due dates so the funds are paid out just when they are needed. You watch your savings grow knowing that they are readily available if ever you need them.

  • You don’t like trying to guess what is happening with rates. Fixing your home loan just to try to beat the banks seems a bit pointless. It is a pleasant surprise when the RBA reduces the rates and your rate falls. You like to watch the amount of interest charged on your home loan go down.

  • You like to actively manage your finances. You periodically check your home loan and what is available in the market. Even though you don’t refinance each time you see a lower rate, you keep track of what is offered by different lenders and carefully consider the cost and benefit of refinancing before you make the move.

  • You don’t want a sudden spike in repayments. If interest rate increases occur over a period of time which gives you time to re-adjust your budget for increased repayments. If you are struggling, you can make adjustments gradually to reduce your expenditure and increase your income.

  • You like to keep your options open. You want to be able to have the option of selling the property or refinancing if the need arises and not have to consider fixed rate break costs.

Why would you choose to fix?

  • You can’t afford your repayments to increase due to you being on a very tight budget. It could be you have gone back to being on one income or you have stretched your finances to get into the property market. You fix because knowing how much your repayments will be is more important than if variable rates happen to rise or fall.

  • You think rates will rise. You consider that fixed rates being offered currently are pretty competitive and your research is indicating that rates will rise. You lock in a good fixed rate and keep your fingers crossed that you have made the right choice.

  • You have an investment property loan and like the idea of knowing what the repayments will be over a set period of time. You plan to keep the property long term and are not worried about not being able to pay extra, redraw or have an offset account attached.

  • You pay a set amount on your home loan regardless and don’t tend to redraw. Avoiding rate increases and rising repayments, are more important to you than keeping your options open to refinance or sell the property.

  • You think carefully about whether rates are likely to fall and leave you stuck with a higher rate. You research thoroughly and are careful to choose a fixed term that you feel will minimize risk of that happening.

What to be cautious about?

Lenders can offer competitive fixed rates for 1-5 years, but then once the fixed period is over, the variable rate it reverts to may not be as competitive. If this happens you may be faced with having the cost and hassle of refinancing to find a better variable rate. When comparing different fixed rate home loans, be sure to include this in the pros and cons of each loan.

Consider a split home loan

If you like the idea of the predictability of a fixed loan and the flexibility of a variable loan, you can have both. A split home loan is where borrowers can divide their loan amount into multiple portions: part fixed and part variable. Some borrowers split the amount 50/50 while other divide the portions further in 1 year fixed, 3 year fixed etc.

The advantages of a split home loan are:

  • Help spread the ‘risk’ so that not all your loan is locked into a single fixed rate. If rates fall then you will benefit from the decrease on the variable portion while still having some repayment stability on the fixed portion.
  • Access to more features that are usually offered for variable loans. Some money saving features include extra repayments and an offset account.

When doing your research, ask lenders about the options you have for fixing some or all of your loan.


Don’t forget to take your own personal and financial situation into account when deciding whether to fix or not. Unpredictable salary, changing work hours or a new baby could mean that you need more financial stability.

Important questions to consider

The type of interest rate you choose could impact the amount of money you save over the home loan term, so it’s worth asking yourself these questions before choosing.

  • Where are home loan interest rates heading?

    There are a number of economic indicators that can give you an idea where the mortgage market is heading. Keep up to date with the latest news and tips from economic experts. If interest rates are set to increase, you may consider fixing your home loan or if interest rates are set to reduce, you could take advantage of a lower variable rate.

  • Do you prefer predictability or flexibility?

    A fixed rate home loan has more predictable repayments, whereas a variable rate has more flexible repayment options and other features. You need to decide which is more important.

  • What loan features do you need?

    Extra repayments, free redraw and an offset account are all extra features that can help your money work harder for you. Before deciding on a loan, you will need to think about which features you want and which lenders offer these extras.

  • How soon do you want to pay off your home loan?

    If you are eager to repay your home loan as soon as possible, a variable rate may be more suitable as some lenders may charge a fee if you repay your loan before the end of the fixed term.

  • How would you feel if you have fixed your rates and then variable rates fell dramatically?

    This happened a few years ago and some borrowers made the difficult decision to pay thousands in fixed rate break costs to get out. It pays to think carefully about when to fix and for how long.

  • Is there a chance that you may want to sell the property in the next few years?

    If you would consider selling if you got a good offer or if you found your dream home, then having a variable rate loan allows you to keep your options open. Depending what happens with variable rates, if you sell while you are in a fixed rate term, you could be up for break costs.

Tips to find the right interest rate

  • Use comparison websites to compare home loans from different lenders in one spot. You can see what fixed and variable rates are on offer.
  • Use online tools such as calculators to do your own research and compare what your repayments will be for different interest rates.

Do it yourself

Compare different fixed and variable rate loans with our Loan Comparison Calculator. For fixed rate loans tick the box “This loan has an introductory rate” and enter the details of the fixed rate in this section. The ongoing rate will be the variable rate it reverts to at the end. This will help you compare different loans side by side.

  • Consider how long to fix for as there are different fixed rates for different amounts of time. Most lenders offer fixed loan for 1 – 5 years, but it could be more. Use the information above to help you determine the best fixed term for you.

  • Speak to your current lender as they may be able to offer a more competitive deal in order to keep you as a customer. It will also save the hassle of moving to another lender.

Choosing the right interest rate to suit you is an important decision and the team at State Custodians can help. Our Lending Specialists can give you the information you need to make an informed decision, whether it be for a fixed, variable or split home loan.

You can call them on 13 72 62 or leave your details here and they will contact you.