Back to Guides

Fixed vs. Variable Home Loans: Which is Better for You?

To fix or not to fix? We explain the difference between fixed and variable rate loans, and the pros and cons of fixing your rate. So you can decide which type of home loan is best for you.

April 18, 2023

Elderly woman sitting on bed in pyjamas, typing on laptop

When looking for a home loan, borrowers are often faced with the decision of choosing between a fixed or variable interest rate. Both options have their advantages and disadvantages, and it can be difficult to determine which one is right for you.

In this article, we will explore the differences between fixed and variable home loans, and help you decide which one is best for your situation.

Fixed Home Loans

A fixed home loan is when the interest rate is locked in for a set period, typically between one and five years. This means that your repayments will remain the same for the duration of the fixed term, regardless of any changes in the official cash rate or other economic factors.

Advantages of Fixed Home Loans:

  1. Stability: With a fixed home loan, you have the peace of mind of knowing exactly how much your repayments will be for the fixed term. This makes it easier to budget and plan for other expenses.
  2. Protection against interest rate rises: If interest rates rise during the fixed term, your repayments will not be affected. This can be particularly beneficial if you have a tight budget or are on a fixed income.

Disadvantages of Fixed Home Loans:

  1. Lack of flexibility: If you wanted to pay off your loan early or refinance before the end of the fixed period, you may be charged a break fee. This can be a significant cost, and may offset any savings you make from the fixed interest rate.
  2. No benefit from interest rate drops: If interest rates fall during the fixed term, you will not receive any benefit from the lower rate.

Variable Home Loans

A variable home loan is a mortgage with an interest rate that can fluctuate over time, based on changes in the official cash rate or other economic factors. This means that your repayments may increase or decrease over time.

Advantages of Variable Home Loans:

  1. Flexibility: Variable home loans typically offer more flexibility than fixed home loans. You can make additional repayments or pay off your loan early without incurring a break fee.
  2. Potential savings: If interest rates fall, your repayments will decrease, which can result in significant savings over the life of your loan.

Disadvantages of Variable Home Loans:

  1. Lack of certainty: With a variable home loan, your repayments can increase if interest rates rise. This can make it difficult to budget and plan for other expenses.
  2. Exposure to interest rate rises: If interest rates rise, your repayments will increase, which can put a strain on your budget.

Why do rates matter so much?

The rate on your home loan dictates how much interest you will pay on your borrowed amount, over the life of the loan. Even a small change in rate can make a big difference over the 30-year loan term.

For example, if you had a rate of 5.0% and interest rates fell in the first year by 0.25%, your monthly repayments would drop by about $100 a month, on a loan of $700,000. And you would save around $38,000 in interest over a 30-year loan term. That’s your Netflix subscription covered for 3,800 months.

Which One is Right for You?

The decision of whether to choose a fixed or variable home loan will depend on your individual circumstances and preferences. If you prefer stability and certainty, a fixed home loan may be the best option for you. If you value flexibility and potential savings, a variable home loan may be more suitable.

It's important to consider factors such as your income, expenses, risk tolerance, and long-term goals when making this decision. Getting independent financial advice can also help you make an informed choice.

In conclusion, both fixed and variable home loans have their pros and cons. By understanding the differences between the two, you can make an informed decision and choose the home loan that best suits your needs.

Applying for a Tiimely Own home loan

We’ll ask you some questions and provide you with loan options we think will suit you best – whether that be fixed or variable. But the decision will be all yours. Have more questions? Let's talk.


By Veronica

Credit Assessment Team Lead


Legal things about our rates
Our home loans are subject to credit criteria and eligibility requirements. Home loan interest rates are for new customers only and can change. Our comparison rates are based on a $150,000 loan amount over a 25 year term. They factor in fees associated with applying for the loan; ongoing fees and fees associated with leaving the loan. Our fixed loans roll to a variable principal and interest rate at the end of the fixed term. If the interest only period is not specified, the comparison rate is calculated on a one year period.

WARNING: The comparison rates are true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

Tiimely Turnaround
^Our turnaround times are up to 2x faster than the industry, based on a comparison of our average platform submit to approval time compared to industry submit to approval time, published here  (June 2023). Customer turnaround times are dependent on individual circumstances and may require an assessor to obtain more information.

Our trade mark
Tiimely is a registered trademark of Tiimely Pty Ltd.