When you take out a home loan, one of the largest choices is whether the interest rate is fixed, variable, or split between the two. ASIC's MoneySmart guidance, last updated 16 September 2026, is the main official starting point for this comparison. The right mix depends on how much certainty you want, whether you might make extra repayments or refinance, and whether you need features such as an offset account.

This explainer sets out those differences, what to ask a lender, and how to test a higher rate with the mortgage repayment calculator. It is not a recommendation of a product, a rate or a split percentage.

This is general information only. It is not personal advice, and it is not a loan offer.

What is a fixed rate?

A fixed interest rate stays the same for a set period, usually between one and five years, according to MoneySmart. During that time your repayments will not change, even if market rates rise or fall.

When the fixed period ends, the loan will usually move to the lender's variable rate, often called the revert rate, unless you switch loans or agree to another fixed period. The revert rate is not always the lender's best advertised variable rate, so the repayment can jump even if official cash rates have not moved in the same way.

MoneySmart lists these benefits:

  • you will know exactly what your repayments will be
  • budgeting can be easier
  • you are protected if interest rates rise during the fixed period

And these points to weigh:

  • you will not benefit if interest rates fall
  • you may be charged a break fee if you switch home loans, sell the property or pay the loan off early
  • some fixed-rate loans have fewer features, such as offset accounts or the ability to make extra repayments, than a variable loan

Break fees can be large when market rates have fallen, because the fee often reflects the lender's cost of unwinding the fixed funding. Ask for an estimate before you treat a fixed loan as easy to leave.

What is a variable rate?

A variable interest rate can go up or down over time. MoneySmart is clear that the lender decides whether to change the rate and by how much. Changes to the Reserve Bank's cash rate may influence variable home loan rates, but lenders can also change rates for other reasons.

If the rate rises, your repayments may increase. If it falls, they may decrease.

MoneySmart lists these benefits:

  • repayments may decrease if interest rates fall
  • it is often easier to refinance or switch loans
  • many variable loans allow extra repayments
  • features such as offset accounts and redraw facilities are often available

The main drawback is that repayments can increase unexpectedly, which makes budgeting less predictable. If you are borrowing close to your limit, MoneySmart says to think carefully about how you would manage higher repayments if rates rise.

The Never Lose Interest offset calculator shows how an offset balance can reduce interest on a variable loan, compared with extra repayments. Offset and redraw rules are set by the loan contract, not by a general law that every variable loan must have them.

What is a split loan?

A split home loan divides the loan into two parts. One part has a fixed rate and the other has a variable rate. You and the lender agree how much sits in each part, for example half and half, or a smaller fixed portion.

MoneySmart says a split can give you:

  • more certainty over repayments on the fixed part
  • flexibility to make extra repayments on the variable part
  • access to features that may be available on the variable part

It can also be more complex. Different rates, fees, features and conditions may apply to each part, so you need to look at the total cost, not only one advertised rate. Ask which part can be linked to an offset account, whether extra repayments are allowed on the fixed part, what fees apply to each part, and what happens to the fixed part when that period ends.

A split does not remove the break-fee risk on the fixed portion, and it does not cap the variable portion if rates rise.

How to compare them in practice

MoneySmart's comparison is:

Fixed rate Variable rate
Repayments stay the same during the fixed period Repayments can rise or fall
Can make budgeting easier Can make budgeting less predictable
Protects you from rate rises during the fixed period You may benefit if rates fall
May limit extra repayments Often allows extra repayments
Break fees may apply if you switch or refinance It is often easier to switch loans
May have fewer loan features Offset and redraw features are often available
Usually moves to a variable rate when the fixed period ends Continues as a variable rate unless you switch or change the loan

The interest rate is not the only number that matters. Fees, features and the repayment at a higher rate all change the cost. MoneySmart suggests trying more than one interest rate, and ideally calculating what the loan would cost if rates went up by 3%. That 3% buffer is a planning exercise, and it is also the serviceability buffer APRA requires lenders to apply when they assess many loans. See the borrowing power calculator.

Use the mortgage repayment calculator with the rate you have been offered, then again with a rate 2 or 3 percentage points higher. If the higher repayment would break your budget, a fully variable loan at your maximum borrowing capacity is a tight fit, and a fixed rate only delays the question until the revert date.

If you later want to switch lenders, the refinancing guide covers discharge fees, break costs and the work involved.

Questions worth asking the lender

MoneySmart's lists, combined, are a good script:

  • What revert rate is likely to apply when a fixed period ends, and how much could the repayment increase?
  • Can you switch to another loan at the end of the fixed period, and what fees apply if you refinance earlier?
  • When and how will the lender tell you that a variable rate or repayment is changing?
  • Can you make extra repayments without fees, and is an offset or redraw available?
  • For a split, how much is fixed and how much is variable, which part can use an offset, and what happens when the fixed part ends?

There is no official best split. A larger fixed share buys more repayment certainty and more break-fee risk. A larger variable share keeps flexibility and leaves more of the loan exposed to rate changes.

Frequently asked questions

Will my variable rate always move with the cash rate?

No. MoneySmart says lenders can change variable rates for reasons other than a change in the cash rate, and they decide the size of any change.

Can I fix my loan later, or unfix it early?

Many lenders will let you fix a variable loan, or re-fix at the end of a term, subject to their rates and fees at the time. Leaving a fixed period early can trigger a break fee. Get the figure in writing before you decide.

Does a fixed rate mean I cannot use the 5% Deposit Scheme?

The official 5% Deposit Scheme rules require an owner-occupier principal-and-interest loan from a participating lender. They do not, on the pages reviewed for this article, require the rate to be variable. Whether a particular fixed or split product is offered under the scheme is a matter for the participating lender. See the 5% Deposit Scheme explainer.

General information warning

This article is general information only. It is not personal financial product advice, and it is not a recommendation to choose a fixed, variable or split home loan. It does not take into account your objectives, financial situation or needs. Rates, features, revert rates and break fees are set by lenders and can change. Consider speaking with a licensed adviser, and compare the loan contract, not only an advertised rate, before you sign.

Sources

Last reviewed: November 2026.