🔑 Choosing the Right Home Loan: Variable Rate, Fixed Rate, or a Split Loan?
- Hannah Richards
- Oct 8, 2025
- 2 min read
One of the biggest decisions when taking out a home loan is deciding whether to go with a variable rate, a fixed rate, or a combination of both. Each option has its advantages and considerations, and the right choice depends on your financial situation, goals, and risk tolerance. This guide will help you understand the differences and make an informed decision.
📌 What Is a Variable Rate?
A variable rate loan means the interest rate can change over time, depending on factors like the Reserve Bank’s cash rate and your lender’s policies.
Pros:
Flexibility: You can make extra repayments at any time without penalties, helping you pay off your loan faster.
Potential Savings: If interest rates drop, your repayments can decrease.
Redraw and Offset Options: Most variable loans allow access to extra repayments via redraw facilities or offset accounts.
Cons:
Rate Fluctuation: Your repayments can increase if interest rates rise.
Uncertainty: Planning long-term budgets can be harder with changing repayments.
📌 What Is a Fixed Rate?
A fixed rate loan locks in your interest rate for a set period, usually 1–5 years.
Pros:
Repayment Certainty: Your repayments stay the same, making budgeting easier.
Protection from Rate Rises: You’re shielded from interest rate increases during the fixed period.
Cons:
Limited Flexibility: Extra repayments may be restricted, and fees may apply if you refinance or break the loan early.
Missed Savings if Rates Drop: If interest rates fall, you won’t automatically benefit from lower repayments.
📌 Combining Fixed and Variable Rates: The Split Loan
A split loan allows you to divide your mortgage into two parts: one fixed and one variable.
Pros:
Best of Both Worlds: You enjoy the stability of a fixed rate on one portion and the flexibility of a variable rate on the other.
Risk Management: You’re partially protected if rates rise while still having access to flexible repayment options.
Cons:
Complexity: Managing two different types of loans can be more complicated.
Fees May Vary: Some lenders may charge higher fees for split loans.
💡 Tips for Choosing the Right Option
Assess Your Risk Tolerance: If rising interest rates would seriously impact your budget, a fixed or split loan may provide peace of mind.
Consider Your Flexibility Needs: If you plan to make extra repayments, a variable or partially variable loan may be better.
Think About Your Financial Goals: Are you looking for long-term savings, short-term stability, or a combination?
Review Your Loan Features: Check for redraw facilities, offset accounts, and fees, as these can significantly impact your flexibility and savings.
📝 Conclusion
There’s no one-size-fits-all solution when it comes to choosing between variable, fixed, or split home loans. The right choice depends on your financial situation, goals, and comfort with interest rate changes. Many borrowers find a split loan offers a balance of stability and flexibility, but it’s important to carefully weigh your options.
For personalised advice tailored to your circumstances, speak with a mortgage broker or financial advisor. They can help you compare options, understand potential costs, and make a choice that aligns with your long-term financial goals.
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