When you're gearing up to buy your first home, one of the biggest head-scratchers is choosing between a fixed or variable interest rate. It sounds technical, but the decision can have a real impact on your monthly budget, flexibility, and peace of mind. The good news? You don’t need to be a finance expert to make a smart call, you just need to know the basics.
Here’s the lowdown, in plain English.
What’s the Difference Between Fixed and Variable Rates?
Fixed rate loans lock in your interest rate for a set period (usually 1 to 5 years). This means your repayments stay the same during that time; great if you’re big on budgeting or nervous about rate hikes.
Variable rate loans, on the other hand, rise or fall depending on the market. They usually offer more flexibility, like the ability to make unlimited extra repayments, access redraw facilities, or use an offset account.
Then there’s the split loan; a hybrid that combines elements of both fixed and variable structures. You fix part of your loan for stability, and keep the other part variable for flexibility.
Pros and Cons: What’s Right for You?
Let’s break it down.
Fixed Rate – Pros:
- Predictable repayments (no surprises)
- Good for budgeting, especially if you're on a tight income
- Peace of mind during rising rate periods
Fixed Rate – Cons:
- Limited flexibility (often caps on extra repayments)
- Break fees can apply if you refinance or sell early
- If rates drop, you won’t benefit
Variable Rate – Pros:
- Freedom to repay faster with no penalties
- Access to features like offset and redraw
- Potential to benefit if interest rates fall, depending on lender pricing and market conditions
Variable Rate – Cons:
- Repayments can increase
- Harder to budget long-term
- More exposed to market volatility
Should First-Home Buyers Consider a Split Loan?
If you're feeling torn, you're not alone. Many first-home buyers opt for a split loan; a portion fixed, a portion variable. It gives you the stability of fixed repayments for part of your loan while keeping access to offset and extra repayments through the variable portion.
Some buyers consider split loans when they want access to features like extra repayments while also having some repayment certainty, though suitability depends on individual circumstances.
How to Decide What’s Best for You
One way to compare options is to think about how important certainty, flexibility, or a mix of both is to you. Different loan types align with these preferences in different ways, but the right choice will depend on your broader financial circumstances.
- If you value certainty and are risk-averse → fixed might suit you.
- If you’re comfortable with change and want flexibility → variable could be better.
- If you’re somewhere in between → consider a split.
Also ask yourself:
- Are you planning to stay in the home for a few years or possibly upgrade soon?
- Do you expect your income to change in the near future?
- Will you want to make extra repayments regularly?
Your answers can guide the choice. And remember, rates change over time, so your loan doesn’t have to stay the same forever. Some buyers review their loan structure over time as their needs change, and may explore refinancing where appropriate and subject to lender approval.
Don’t Navigate It Alone
Choosing your loan structure isn’t just a financial decision, it’s an emotional one too. There’s a lot riding on getting it right. So don’t stress if it feels overwhelming. You’re not meant to figure it all out in one sitting.
That’s why we created the First Home Buyer e-book; a free, jargon-free guide designed for Aussies like you. It breaks down everything from fixed vs variable to pre-approval and government schemes. You’ll get side-by-side comparisons, checklists, calculators and practical guidance to help you understand key concepts.
Download your free e-book today and take the next step with confidence. Buying your first home is a big milestone, and having clear information and the right tools can help the process feel more manageable.
