What variable loans do
Variable rates move when your lender changes its pricing, often following market and central bank moves. Repayments can go up or down over time. Variable loans usually offer more flexibility for extra repayments, redraw, and offset accounts.
If you expect to pay down the loan quickly or want to refinance without heavy break fees, variable can fit well. Budget for higher repayments in case rates rise, even if forecasts look calm.
What fixed loans do
A fixed rate locks your interest rate for a set period, commonly one to five years. Repayments stay predictable, which helps household budgeting. When the fixed term ends, the loan typically reverts to a variable rate unless you fix again.
Fixed loans often limit extra repayments and may charge break costs if you sell, refinance, or pay off early. Read the cap on extra payments and the break fee formula before you sign.
Split loans and hedging
Many lenders let you split one mortgage into fixed and variable portions. You get partial certainty while keeping some flexibility on the variable slice. Splits can be adjusted at renewal if your goals change.
There is no perfect split for everyone. A common approach is fixing enough to cover core living costs while leaving the rest variable for lump-sum repayments. Model a few splits with your broker using your actual balance.
Choosing for your situation
If stable repayments matter more than flexibility, lean fixed. If you plan aggressive paydown or might move soon, lean variable. Personal cash flow and risk tolerance matter more than guessing short-term rate moves.
Compare products on features, not rate alone. A variable loan with a strong offset may beat a slightly lower fixed rate once you run the numbers with your average balance in offset.
FAQs
Can I switch from fixed to variable mid-term?
Usually yes, but break costs may apply on the fixed portion. Ask your lender for a payout figure before you decide. Sometimes waiting until the fixed period ends is cheaper.
Do fixed rates always move with the market?
Fixed rates are set at application time based on market expectations and funding costs. They do not change during the fixed term, even if variable rates rise or fall.
Is a split loan harder to manage?
You track two sub-accounts, but most lenders show one total repayment. The main task is watching when each fixed portion expires so you can re-fix or adjust before revert rates apply.
General information only. Not financial, tax, insurance or credit advice.