Fixed vs variable home loan rates, explained. What’s the difference and which is better?

Whether refinancing or taking out a home loan for the first time, acquiring a competitive rate could save you thousands of dollars. But should you go fixed, variable, or even a combination of the two?

Fixed vs variable home loan rates, explained. What’s the difference and which is better?

Whether refinancing or taking out a home loan for the first time, a competitive rate could save you thousands of dollars. But should you go fixed, variable, or even a combination of the two?

Australians are refinancing at record rates amid recent RBA interest rate increases. The value of owner-occupier refinancing between lenders rose to a record 9.1% in November 2022, according to the Australian Bureau of Statistics (ABS).

The average variable rate in December 2022 was 5.45% while fixed rates were 5.81%, according to Mozo.

That’s a difference of about $115 a month or $40,500 across a 30-year $500,000 mortgage. So, choosing the right interest rate on your loan is worthwhile.

What’s the difference between fixed and variable home loans?

Fixed and variable refer to the two major types of home loan rates on the market in Australia.

The difference between the two comes down to the interest rate.

With a fixed rate, the interest rate remains set in place of ‘fixed’ for a specified period.

For a variable rate, the interest rate can fluctuate, going up or down depending on broader interest rates and your lender.

You can also combine the two into a split rate home loan, potentially allowing you to take advantage of the features of both.

A split rate divides your loan into multiple parts which are financed at both fixed and variable rates. They offer a combination of mortgage features.

How does a fixed rate home loan work?

A fixed rate home loan is one in which the interest rate you pay is locked in place or ‘fixed’ for a set period.

This period varies but is typically between one and five years.

When you take out a fixed rate, you are guaranteed that the interest rate you pay month to month will remain the same and will not fluctuate.

At the end of a fixed term, you can choose to either move into a variable rate home loan, or refinance to either a split rate home loan or another fixed rate home loan.

You can typically break out of a fixed rate home loan early if you wish, although it is likely your bank or lender will charge you a fee.

What are the pros and cons of a fixed rate mortgage?

Benefits of fixed interest rate

  • Protection from rate rises - If interest rates go up, your repayments will remain consistent, protecting you from rate rises throughout your fixed term.
  • Certainty in your repayments - Knowing how much your mortgage will cost you each month can give you the ability and peace of mind to budget for other expenses.
  • Potential to save on fees and charges - Variable home loans come with various extras, but these can be expensive, so if you’re happy without them, you can avoid some fees with a fixed rate.

Potential drawbacks fixing your interest rate

  • Lack of features - The features of a variable rate home loan can be convenient. For instance, an offset account can be used to lower the balance of your home loan while accessing funds for everyday banking. Some fixed-rate loans do come with a redraw facility, but you need to check with your lender to see if this is available.
  • Potential to miss out on rate cuts - If interest rates fall, you will not get the benefit of this if you have locked in your rate.
  • Inability to make additional repayments - Variable home loans generally allow you to make additional repayments to pay off the balance faster, but one of the trade-offs for the certainty of a fixed rate is that you may not be able to do this.

Which one is for me?

Deciding between a fixed, variable, or split rate could save you thousands of dollars in repayments amid rising interest rates.

If interest rates are expected to rise, a fixed rate may be appealing as your interest rate could be less than the current cash rate. If they fall, though, a variable might be the way to go.

Choosing the ‘correct’ rate depends greatly on your circumstances, though. It helps to shop around to find the best rate.

Refinancing or taking out a new loan? UNO can help you compare from over 20 lenders to find the best deal today.

Book Call Now

UNO home loans

Need help with your home loan?

UNO Brokers are available night and day for a quick review or your situation and bring expertise that will support better decision making that will save you time and money. Book in a quick call when it suits your busy schedule

Get Started

Related Articles


What our customers are saying

Sally Mackenzie
February 19, 2024
We chose Uno Home Loans from their impressive web site knowing we were going to find it hard, on many fronts, to qualify for a home loan. We were incredibly fortunate to be assigned Mike Parsons as right from the get-go, despite the complexities, he hit the ground running for us. He was incredibly knowledgeable, with years of experience but what was immediately apparent and impressive was that he was totally invested in getting us over the line, doing absolutely everything possible, including working around the clock. Despite it being a relatively small loan in the order of things, Mike never missed a beat, getting docs ready, following up and answering every request from the proposed funder immediately. He kept us informed on progress the minute anything happened, and again if anything needed to be done, he was right on it. In short, we highly recommend Uno, and Mike, knowing what a remarkable job he did, over many weeks, to get us our loan. He got us a great deal, with far better rates than we expected, so we couldn't be happier. In fact, without doubt, you'd be hard pressed to find a more personable, sharp, hard working, dedicated professional who clearly prides himself on getting his customers standout results.
Read more
February 13, 2024
Scott and his team were just A-mazing. We felt supported through the whole process with the greatest quality and care. Every question answered right in time, or even before we asked. The process was smooth and we got the best outcomes we could have wished for.
Read more
Angela Biddle
February 6, 2024
Our mortgage recently came up for renewal, and with interest rates skyrocketing we were looking for ways to minimise the impact. Michael and his team were proactive and attentive. Michael spent time with us to understand our circumstances. He found mortgage options that worked with our current financial situation and longer investment plans. He presented clear options, providing guidance where needed. He and his team were helpful and responsive - streamlining the process and keeping us updated through the negotiations. In the end, Uno did the heavy lifting and secured a significantly better rate than our current bank offered, all with friendly, personal service. We would highly recommend UNO Home Loans.
Read more
Fotis Bikas
January 15, 2024
I cannot help but congratulate Scott Wilkinson of UNO Home Loans for being an absolute credit to both his company and the entire loans industry. Scott is a truly rare gem of a broker in that he will not only go the extra mile to achieve for each customer the very best deal, but his knowledge of all and sundry within the industry is unsurpassed (you will see what I mean if you speak to him). Additionally, Scott has a clear passion for imparting his wealth of information with each customer, whereas the conversation with most other brokers would simply be over if they could not get you the best deal. For me, Scott Wilkinson of UNO Home Loans stands head and shoulders above the competition and I feel privileged to benefit both from his expertise and professionalism whenever it is time for a refinance or new loan.
Read more
Tomoharu Matsui
January 11, 2024
Michael Parsons helped me a lot when it's difficult to establish my capabilities in loan.
Read more
Gillian Kearon
January 9, 2024
I highly recommend Mike Parsons as a mortgage broker. I couldn't fault the service provided by UNO. Thanks Mike!
Read more
Taner T
December 20, 2023
Thank you Eren Tan for the amazing service and support. Our Loan was a little tricky and complex for other lenders but Eren managed to get it over the line in record time. His professionalism and dedication to our needs was exceptional. If you need a Loan no matter how complex your situation, make sure you contact Eren at UNO Home Loans.
Read more
Karaipu Brown
December 20, 2023
Buying & selling a house at the same time is very stressful but Scott Wilkinson from UNO home loans made sure we knew what was happening & took most of the stress away. He always kept us up to date and if we had a concern or wanted clarification on something we were able to call him, if he didn’t know the answer straight away he will find out and contact us back.. now we are enjoying our new house and turning it into a home :)
Read more
Chris Anderson
December 18, 2023
Just completed my first loan with UNO which was so much easier than with other other brokers I have used in the past. Our broker MIKE PARSONS always had time for me and broke things down for me in the simplest of terms and was very patient with my silly questions and my constant changing of plans. I wish I had used them in the past as I wouldn't be in the situation I'm in now. Can't recommend them highly enough. Thanks UNO and Thanks MIKE 😊
Read more
Stephen Broomfield
December 11, 2023
To be able to recommend Scott Wilkinson for your mortgage broker was a privilege. We had deals fall through but Scott supported, guided and stuck with us, proper partnership. The whole team at UNO helped us and supported us right through to after settlement. Made sure everything was correct and how we are progressing. Communication was amazing and straightforward and easy to understand. Transparent. We can not Recommend Scott and the team as Uno high enough. Use UNO with confidence.
Read more
Tarek Hussain
December 6, 2023
Can't thank Amy enough for her hard work, dedication and determination on getting multiple loans completed for me. I wouldn't hesitate in recommending Amy and the Uno team to any of my associates. Will definitely be back in the near future!
Read more
November 3, 2023
If you’re looking for a trustworthy, thorough, reliable & knowledgeable Mortgage Broker then you must call Anita Callaghan! I can’t even imagine how stressful this process would’ve been without her. Anita went above and beyond to make sure she answered every question, responded to every text (even on weekends/after hours), and followed up on every detail to ensure we had all the info we needed. Anita is a true people person who is warm, empathetic, kind and supportive. You can tell she loves helping people and loves what she does, which is probably why she’s so good at it! Can’t thank you enough Anita, or recommend you more highly! You’re the best!
Read more