Fixed vs Variable Rate Home Loan: Which is the Right Choice?

By Gian Ottavio, Lead Broker, Sydney

With a potential 0.25% rate cut on the horizon, many Australians are asking the same question: Is now the time for a fixed or variable rate home loan? Whether you are a first home buyer, looking to refinance, or an experienced investor, making the right choice could save you thousands.

This guide breaks down everything you need to know.

What is a Fixed Rate Home Loan?

A fixed rate home loan locks in your interest rate and repayments for a set term, typically between one and five years.

This option provides certainty and protects you from interest rate rises during the fixed period. For anyone on a tight budget or planning for significant life events, the stability of knowing your exact repayment amount is a major advantage.

Pros:

• Certainty and Stability: Your mortgage repayments will not change, even if the RBA increases the cash rate.
• Budgeting Confidence: Predictable repayments make it easier to manage your household budget.
• Competitive Rates: With banks like ANZ and NAB already cutting their fixed-rate products, some of the most competitive fixed rates in months are available now. ANZ’s 2-year fixed rate is currently as low as 5.19%.

Cons:

• Less Flexibility: If the official cash rate falls, you won’t benefit from lower interest rates.
• Break Fees: Exiting your fixed term early to sell your property or refinance can attract significant break fees.
• Limited Features: These loans often have fewer features, such as the ability to make unlimited extra repayments.

What is a Variable Rate Home Loan?

A variable rate home loan has an interest rate that can change over the life of the loan, moving with market conditions. This gives borrowers the chance to benefit from rate cuts but also exposes them to increases.

Pros:

• Potential to Save: If the RBA proceeds with its predicted rate cuts, you could see an immediate reduction in your repayments. All four major banks are now forecasting at least one rate cut in 2025.
• Greater Flexibility: Variable loans usually come with valuable features like offset accounts, redraw facilities, and the freedom to make unlimited extra repayments.
• No Break Fees: You can switch lenders or sell your property without incurring exit penalties.

Cons:

• Uncertainty: If inflation rises, your rate and repayments could increase, making it more difficult to budget.
• Risk of Higher Repayments: You are not protected from future rate hikes, which could increase your monthly financial commitments.

How the Market Looks Ahead of the July RBA Meeting

The current market is creating a unique opportunity for borrowers. Inflation dropped to 3.4% in May, prompting a shift in forecasts from the major banks. In response, lenders have already lowered their fixed-rate offerings, anticipating that the RBA will cut the official cash rate.

At the same time, national property values have hit a new peak, rising by 0.4% in June alone, according to CoreLogic. With both interest rates and property prices in motion, the timing of your home loan decision is critical.

Our View: What Should You Do?

There is no single answer that fits everyone. Each client’s circumstances are different — that’s why we always recommend a tailored approach, and in some cases, even split loans to balance risk and flexibility.

The right choice depends entirely on your financial situation and your tolerance for risk.

• For Stability and Peace of Mind: If you are a first-time buyer or need predictable repayments for budgeting, a fixed rate home loan offers valuable security.
• For Flexibility and Potential Savings: If you are comfortable with market fluctuations and want to take advantage of potential rate cuts, a variable rate home loan could be the smarter option. Investors and self-employed clients often prefer this agility.
• A Balanced Approach: A split loan, where part of your mortgage is fixed and the other is variable, can offer the perfect balance of security and flexibility.

Get Expert Home Loan Advice Today

Navigating the home loan market can be complex, especially when rates and property prices are changing. At Brooks & Partners, we provide tailored advice to help you find the perfect home loan for your unique circumstances.

Whether you’re ready to buy, looking to refinance, or simply want to review your options, our team is here to help. Contact us today for a free consultation and let us help you secure the right loan for your future.