Fixed vs variable vs split home loan: how to decide with real numbers
How fixed, variable and split home loans work in Australia, what break costs, revert rates and extra repayment caps mean, and a worked repayment comparison for each.
Choose a fixed rate if you need certainty about repayments for one to five years and are confident you will not sell, refinance or make large extra repayments in that time. Choose variable if you want flexibility: unlimited extra repayments, a full offset account and the freedom to refinance without break costs. A split loan gives you part of each. The deciding factors are not rate forecasts, which nobody reliably gets right, but how much a repayment rise would hurt your budget and how likely you are to change the loan before the fixed term ends.
This guide is part of home loan rates and repayments in Australia. All rates are illustrative.
How each option works
| Feature | Variable | Fixed | Split |
|---|---|---|---|
| Rate changes | Whenever the lender changes it | Locked for the fixed term | Variable part moves, fixed part locked |
| Extra repayments | Usually unlimited | Often capped, for example at $10,000 a year (varies by lender) | Unlimited on the variable part |
| Offset account | Often available, sometimes only with a package | Often not available or partial | Usually on the variable part |
| Leaving early | Discharge fee only; exit fees banned on loans from 1 July 2011 | Break costs can apply | Break costs on the fixed part |
| After the term | Continues | Reverts to the lender's variable rate | Fixed part reverts |
Worked comparison: $600,000 over 30 years
Illustrative rates: variable 6.14%, fixed 5.79% for three years. The split is 50/50: $300,000 fixed and $300,000 variable. Repayments below are during the fixed period, assuming the variable rate moves early in the term.
| Scenario for the variable rate | All variable | All fixed | 50/50 split |
|---|---|---|---|
| Stays at 6.14% | $3,651.49 | $3,516.70 | $3,584.09 |
| Rises 0.50 points to 6.64% | $3,847.82 | $3,516.70 | $3,682.26 |
| Falls 0.50 points to 5.64% | $3,459.62 | $3,516.70 | $3,488.16 |
How the split figures are built: the fixed half at 5.79% costs about $1,758.35 a month. The variable half costs about $1,825.74 at 6.14%, $1,923.91 at 6.64% and $1,729.81 at 5.64%. Add each variable figure to $1,758.35.
What the table shows:
- The worst case for all-variable is about $331 a month above the fixed loan.
- The best case for all-variable is about $57 a month below the fixed loan.
- The split halves both the risk and the benefit.
Whether fixing "wins" depends on rates you cannot know. The useful question is: could your budget absorb the worst line? If $331 a month more would force you onto a credit card, fixing some or all of the loan buys certainty. Test bigger rises with the rate rise stress test.
The three costs of fixing
Break costs
If you repay or refinance a fixed loan early, or switch it to variable, the lender may charge a break cost to cover its loss when wholesale rates have fallen since you fixed. Break costs can be large and are hard to predict at the start. See fixed rate break costs.
Extra repayment limits
Many fixed loans allow only a limited amount of extra repayments each year. Paying more than the cap can trigger break costs on the excess. If you expect a bonus, inheritance or property sale, keep that money's destination on a variable split.
The revert rate
When the fixed term ends, the loan rolls onto the lender's variable rate for your loan type, which may be higher than the rate offered to new customers. Diarise the expiry date three months ahead and compare; the refinancing mistakes guide shows what rolling off unnoticed can cost.
Rate lock: fixing before settlement
The fixed rate you are quoted at application can change before settlement. Some lenders offer a rate lock for a fee, guaranteeing the fixed rate for a set period, commonly around 90 days. Without one, you receive the fixed rate applying on the day of settlement. Ask about the fee, the lock period and what happens if settlement is delayed.
Choosing your split
Common ways to size a split:
- Fix what you need to protect. Work out the repayment rise your budget could absorb. Fix enough of the loan that the worst-case rise on the variable part stays within it.
- Leave variable what you will repay faster. Put expected lump sums and your offset balance against the variable part.
- Stagger fixed terms. Some borrowers fix part for two years and part for four, so not all of the loan reprices at once. This adds complexity and two expiry dates to track.
Checklist before you fix
- Expiry date written in your calendar, with a reminder three months earlier
- Annual extra repayment cap known, in dollars
- Break cost method explained in writing
- Offset availability on the fixed part confirmed
- Revert rate asked for
- Rate lock fee and period, if you are buying
- Plans for the next five years: selling, moving, renovating, family changes
Frequently asked questions
Are fixed rates always higher than variable rates?
No. Fixed rates reflect expected future funding costs. At times they sit below variable rates, at other times above. Compare the offers available on the day.
Can I make extra repayments on a fixed loan?
Usually up to a limit set by the lender. Above the limit, break costs may apply to the extra amount. Check the loan contract.
What happens when my fixed rate ends?
The loan normally reverts to a variable rate. The lender should tell you before the term ends. You can then refix, stay variable, negotiate or refinance without break costs.
Is a split loan more expensive?
Not necessarily. Some lenders charge one package fee for the whole loan; others treat each split as a separate account. Ask how fees apply to each part.
Sources
- ASIC Moneysmart — fixed, variable and split home loans
- Reserve Bank of Australia — cash rate decisions that drive variable rates
- Australian Financial Complaints Authority — disputes about break costs and loan terms
