Fixed interest rates on home loans
Fixing your interest rate locks your repayment for a set period, trading flexibility for certainty. That certainty can be worth a lot, or it can cost you, depending on what rates do and how your life changes. This guide explains how fixed rates work, where they help and where they hurt, and the split loan approach that tries to have it both ways.
Last updated July 2026How a fixed rate works
With a fixed rate, your interest rate is set for an agreed term, commonly one to five years. During that period your rate does not move, so your repayment stays the same regardless of what the Reserve Bank of Australia does with the cash rate. When the fixed term ends, the loan usually reverts to the lender's standard variable rate unless you arrange something else.
Fixed versus variable
| Consideration | Fixed rate | Variable rate |
|---|---|---|
| Repayment certainty | Locked for the term, easy to budget | Can rise or fall with the market |
| If rates fall | You keep paying the higher fixed rate | Your repayments can fall too |
| If rates rise | You are protected for the term | Your repayments can rise |
| Extra repayments | Often capped each year | Usually unlimited |
| Offset and redraw | Sometimes limited or unavailable | Commonly available |
| Exiting early | Break costs may apply | Usually few or no break costs |
The pros of fixing
- Budget certainty. Your repayment is known for the whole term, which suits tight cash flow.
- Protection from rate rises during the fixed period.
- Peace of mind for people who prefer not to watch the market.
The cons of fixing
- No benefit if rates fall, since you are locked in above the new levels.
- Less flexibility, with caps on extra repayments and limited offset or redraw.
- Break costs if you repay early, refinance or sell during the term.
- Rate shock when the fixed term ends and the loan reverts, potentially to a much higher variable rate.
Understanding break costs
A break cost is a fee for leaving a fixed loan early, whether by refinancing, selling, or repaying beyond the allowed limit. It is not an arbitrary penalty; it reflects the lender's loss when it has funded your fixed rate and market rates have since moved. Break costs can be small or very large depending on how rates have shifted and how much of the term remains, so always ask your lender for a written break cost figure before acting.
If you are thinking of refinancing off a fixed rate, request a break cost quote first. It can turn an apparent saving into a loss. The step by step refinancing guide explains where this fits in the switch.
What happens when a fixed term ends
As the fixed period closes, the loan typically rolls to the lender's standard variable rate, which is often higher than the deal you could negotiate. This is the moment to act: review your rate, ask your lender to reprice, or compare a refinance. Marking the end date in your calendar a month or two ahead gives you time to line up a better outcome rather than drifting onto the revert rate.
Split loans, a middle path
You do not have to choose all fixed or all variable. A split loan divides the balance, for example half fixed and half variable. The fixed part gives you certainty on a portion of your repayment, while the variable part keeps flexibility, extra repayments and often an offset. It softens both the downside of rising rates and the regret of falling ones, at the cost of some complexity.
Frequently asked questions
Should I fix my home loan?
There is no universal answer. Fixing suits people who value certainty and want protection from rate rises, while variable suits those who want flexibility and features. Your cash flow and plans matter more than trying to predict rates.
Can I make extra repayments on a fixed loan?
Usually only up to an annual cap. Exceeding it can trigger break costs. If paying the loan down fast is a priority, check the cap before fixing.
What is a rate lock?
A rate lock is an optional feature, often for a fee, that holds a fixed rate between application and settlement so it does not move against you while your loan is processed.
Keep reading
Compare true cost with the comparison rate, see how fixing affects a switch in refinancing your home loan, or if you are paying a loan down, read how to pay off your mortgage faster.
Sources: Australian Securities and Investments Commission (ASIC) MoneySmart, guidance on choosing between fixed and variable rates; Reserve Bank of Australia (RBA), on the cash rate.
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Master Mortgage Broker Sydney is an independent education website. It is not a mortgage broker, does not arrange loans and does not provide financial or credit advice. Content here is general in nature and does not consider your personal objectives, situation or needs. Always confirm details with a licensed professional before acting.