One of the biggest decisions you’ll make when taking out a home loan is whether to go with a fixed interest rate, a variable rate, or a mix of both.
Each option has its own set of pros and cons and choosing the right one can make a big difference to your monthly repayments and long-term financial strategy.
What Is a Fixed Rate Loan?
A fixed rate loan means your interest rate stays the same for a set period, usually between 1 to 5 years. Your repayments won’t change during this time, no matter what happens in the market.
Pros:
- Repayment certainty – easy to budget, as repayments are locked in.
- Protection from rate rises – you won’t be affected if interest rates increase.
- Peace of mind – especially useful if you’re managing a tight budget.
Cons:
- Less flexibility – there are often limits on making extra repayments, and Offset account is not available with most lenders.
- Break fees – you may be charged fees if you want to refinance or pay off the loan early.
- No benefit from rate drops – if interest rates go down, you won’t pay less.
What Is a Variable Rate Loan?
A variable rate loan means your interest rate can go up or down at any time, depending on changes in the market and decisions made by your lender.
Pros:
- More flexible – you can usually make unlimited extra repayments.
- Access to features – such as redraw and offset accounts to help reduce interest.
- Benefit from rate drops – if rates go down, your repayments may decrease.
Cons:
- Less predictable – repayments can rise if rates increase.
- Budgeting can be harder – not ideal if you need stable, fixed expenses.
- More financial uncertainty – especially if interest rates are rising.
What Is a Split Loan?
If you like the sound of both fixed and variable loans, a split loan gives you the best of both worlds. You can split your loan into two parts:
- One part fixed (for stability)
- One part variable (for flexibility)
This approach gives you some protection from interest rate changes while still allowing for extra repayments and access to features.
How to Choose the Right Option
Here are some key questions to help you decide:
| Question | Fixed | Variable |
| Do you want certainty in your repayments? | ✅ Yes | ❌ No |
| Do you plan to make extra repayments? | ❌ Maybe limited | ✅ Yes |
| Are you comfortable with changing repayments? | ❌ No | ✅ Yes |
| Do you need features like offset/redraw? | ❌ Limited | ✅ Often included |
| Do you want to hedge your bets? | ➗ Consider a split | ➗ Consider a split |
Final Thoughts
There’s no right or wrong answer—just what’s right for you.
- A fixed rate can offer stability and peace of mind.
- A variable rate can provide flexibility and potential savings.
- A split loan can offer a smart balance of both.
Your choice should depend on your personal goals, financial situation, and how much certainty you want around your repayments.
Need Help Deciding?
At Zodiac Finance, we take the time to understand your situation and explain your options clearly, no jargon, no pressure. Whether you’re buying your first home, refinancing, or just want to explore your options, we’re here to help.
Get in touch today for expert home loan guidance that puts your needs first.