A Guide to Variable, Fixed & Split Loans

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Variable Loans

Variable interest rates move up and down depending on the official cash rate, market conditions and each lender’s pricing decisions. When interest rates go down, so will your minimum repayments and when the rates go up, your payments will too.


  • Repayment flexibility: Variable rate loans allow for a wider range of repayment options, including the ability to pay off your loan faster without typically incurring any break costs. Some variable rate loans also offer features like offset accounts or redraw facilities that work to reduce the loan balance you pay interest on, while still allowing you to access the surplus funds.
  • Easier to refinance: If you’re eligible for a better deal elsewhere, it’s normally easier to switch to a different lender or home loan product, without attracting break costs.  
  • You stand to pay less when rates fall: Lenders may cut rates for a variety of reasons, mainly in response to reduced funding costs. If you’re on a variable rate, this means you’ll reap the benefits of lower repayments. 


  • You stand to pay more when rates rise: Lenders can change a variable interest rate at any time. For borrowers, this means their rate will fluctuate over the life of their loan. If your bank raises rates, your repayments will also rise.
  • Cash flow uncertainty: Because rates can change at any time, it is not as easy for you to predict your mortgage repayments over the long term with a variable rate. This inevitably means a variable loan requires that the borrower have the capacity to be more flexible. Maximising loan features like offsets and redraw facilities, if used to build a home loan buffer, can help smooth out cash flow concerns, when the unexpected arises.

Fixed Loans

A fixed rate remains constant even if variable rates change, your repayments stay the same over the fixed period. By knowing exactly what you’ll have to pay, this will help you to manage your budget.

A fixed interest rate can be useful to help protect you against potential interest rate rises for a period; however, it will also mean that you’re stuck with the fixed rate if the variable rate goes down during your fixed period.


  • Rate rises won’t impact you: If you want predictability and stability in your repayments over the next 1 to 5 years, locking in a fixed rate could be the way to go. Some lenders will guarantee a certain fixed rate before settlement but a “rate lock fee” may apply. 
  • Set and forget: Locking in a fixed interest rate means your repayments stay the same throughout the fixed period (typically between 1 to 5 years). Knowing your loan repayments will make it easier to budget and manage your cash flow, giving you more peace of mind.


  • Rate cuts won’t benefit you: If you’ve signed up for a fixed rate, you won’t benefit from any cuts your lender makes to their home loan rates over the fixed term.
  • Less flexibility: Fixed rate loans limit a borrower’s ability to pay off their loan faster by restricting additional repayments or capping them at a certain amount a year. Significant break fees can apply if you want to refinance, sell your property, or pay off your loan in full before the fixed term has ended.
If you take out a fixed rate loan and then variable rates rise, you will need to plan to be able to manage the higher repayments when the fixed rates end.

Split Loans

A split loan is where you divide your loan into multiple splits or sub-loans. In most cases one part of the loan is variable, and the other is fixed. Split loans can also be used to keep tax deductible and non-tax deductible debt separate.

While a portion of your home loan is fixed, you will always know what your repayments will be on that portion of the loan, and you will benefit from rate stability for that portion of your loan.

With the variable part of your home loan, you have the flexibility to make unlimited additional repayments, and the potential to pay off that portion of your home loan faster.

Depending on the type of variable rate home loan you choose you may also have access to offset accounts and/or redraw facilities.

It is worth noting, however, that not all lenders offer this type of loan.

Glossary of terms  

Offset account: an account linked to your home loan that operates like a transaction or savings account. It offsets the balance in that account against the balance of your home loan, so you’ll only be charged interest on the difference.

Redraw facility: lets you access additional repayments you’ve made on your home loan over and above the minimum required repayments.

Break cost: a fee that represents a lender’s loss if you repay your loan early or switch your product, interest rate or payment type during a fixed rate period.

Rate lock: this is a one-time fee that can be charged by lenders when customers lock in a fixed interest rate on offer (typically up to 0.20% of the loan amount).


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