Fixed vs Variable Loans: Choosing the Right Loan Type for You
Christian Stevens, Mortgage Broker
Published January 31, 2025, 2:10 p.m ET
When it comes to home loans, choosing between a fixed or variable interest rate is one of the biggest financial decisions you’ll make. Each option offers unique benefits and trade-offs, and the right choice depends on your lifestyle, risk tolerance, and long-term goals.
Let’s break down how fixed and variable loans work — and help you identify which structure might suit you best.
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🔑 Key Facts
- Fixed rate loans lock in your interest rate for a set term (e.g. 1–5 years), providing repayment certainty.
- Variable rate loans move with the market — they offer flexibility and features like redraw or offset.
- Your decision depends on your budget, goals, and appetite for rate changes.
- Flint helps you weigh the pros and cons — and sometimes, the answer is both.
What Is a Fixed Rate Loan?
Key features include:
- Gross income (before tax)
- Living expenses — often benchmarked to a minimum threshold
- Debt obligations — including credit cards (based on limits, not balances)
- Loan buffer — lenders assess at 2–3% above current rates to account for potential rate rises
This loan type is ideal for borrowers who prioritise stability and want repayment certainty, particularly during periods of rising interest rates.
How Is Borrowing Power Calculated?
Lenders use a formula that includes:
- Predictable repayments: Your monthly repayment amount remains consistent, making it easier to budget with confidence and avoid surprises.
- Protection against rate rises: If interest rates go up during your fixed period, your rate stays the same, shielding you from higher costs.
- Potential break costs: Exiting a fixed loan early (due to refinancing or property sale) may incur substantial penalties known as break fees.
- Limited flexibility: Most fixed rate loans place restrictions on how much extra you can repay each year, and may limit or exclude redraw and offset features.
This loan type is ideal for borrowers who prioritise stability and want repayment certainty, particularly during periods of rising interest rates.
What Is a Variable Rate Loan?
With a variable rate loan, your interest rate can change over time based on your lender’s movements, which are often influenced by changes to the Reserve Bank of Australia’s (RBA) cash rate.
Key features include:
- Fluctuating repayments: Your monthly repayments may increase or decrease depending on market conditions, meaning your budget needs to be adaptable.
- Greater flexibility: Variable loans often include features like redraw facilities, unlimited extra repayments, and full offset accounts to help reduce interest.
- No break fees: You can refinance, make large lump sum payments, or pay off the loan entirely without penalty, providing flexibility over the life of the loan.
Variable loans are best for borrowers who want more control and are comfortable managing potential changes to their repayments.
Split Loans: The Best of Both Worlds?
A split loan allows you to divide your home loan into two portions:
- Reduce existing debts — pay down loans or reduce credit card limits
- Increase income — regular overtime, bonuses, or rental income helps
- Tighten your spending — some lenders review actual bank statements
- Avoid new liabilities before applying (e.g. BNPL or car finance)
- Add a co-borrower to combine incomes if applicable
This hybrid approach gives borrowers the security of fixed repayments and the benefits of a variable loan’s features — often a smart compromise when rates are uncertain or when your financial goals require a mix of stability and agility.
How to Decide What’s Right for You
Choosing between fixed, variable or split loans depends on a few key questions:
- Do you need budgeting certainty? If knowing your repayment amount is crucial for your cash flow, a fixed rate might be ideal.
- Are you planning to make extra repayments or pay off your loan early? A variable loan allows you to make lump sum payments or refinance with greater ease.
- Will you benefit from redraw or offset facilities? These popular features are typically only available on variable or split loans, and can help reduce your interest.
- How sensitive is your lifestyle to interest rate changes? If a rate increase would put pressure on your budget, fixing at least part of your loan could offer peace of mind.
When your needs are more complex or you’re uncertain about future plans, a split loan can offer a balanced solution that adapts as your goals evolve.
📞 Unsure Which Loan Type Fits You Best?
At Flint, we help you match your home loan structure to your real-world lifestyle:
- Offer tailored guidance on fixed, variable and split loan options
- Compare products across major banks and flexible lenders
- Provide insights into how interest rates and features affect long-term affordability
Talk to Flint today and let’s find a home loan solution that gives you confidence, control, and long-term clarity.
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