Fixed vs Variable Rates | iSmart Finance

Choosing between a fixed and variable interest rate is one of the biggest decisions you'll make when getting a home loan. Each option has distinct advantages depending on your financial situation, risk tolerance, and market outlook.

Quick Comparison

Feature	Fixed Rate	Variable Rate
Rate changes	Locked for 1-5 years	Can change anytime
Extra repayments	Limited (usually $10-20k/year)	Unlimited
Offset account	Rarely available	Usually available
Redraw facility	Limited	Full access
Break costs	Can be significant	None

When to Choose Fixed

You want certainty and predictable repayments

You believe interest rates will rise

You're on a tight budget and can't afford payment increases

You don't plan to make significant extra repayments

You're not planning to sell or refinance soon

When to Choose Variable

You want flexibility to make extra repayments

You believe interest rates will fall or stay stable

You want access to offset account or redraw

You might refinance or sell in the near future

You can handle potential payment increases

The Split Loan Option

Can't decide? A split loan lets you have both. You can fix a portion of your loan for security while keeping the rest variable for flexibility.

Example Split

Fixed Portion (60%)

$300,000

Certainty on most of your loan

Variable Portion (40%)

$200,000

Offset account + extra repayments

Common Mistakes to Avoid

Fixing 100% because rates might rise

Better approach: Consider a split to maintain flexibility

Choosing variable without an offset

Better approach: Ensure your loan has features you'll actually use

Not calculating break costs

Better approach: Understand the cost before you fix

Fixing for too long

Better approach: 2-3 years often provides the best balance

Fixed vs Variable: Which Rate Is Right for You?