Our response to limit the spread of COVID-19 | Read here

Is a fixed or variable home loan interest rate best?

To fix your home loan or leave it variable is a very important decision and you what you decide could have big impact on your finances.  With constant talk in the media of potential interest rate changes, it’s understandable that you may want to know whether you should be fixing your home loan or not.  What makes understanding and predicting interest rates rather challenging at the moment is that the banks are changing their interest rates independently of the Reserve Bank’s interest rate decisions. Furthermore, the Australian Prudential Regulation Authority (APRA) which regulates the banks is also changing how banks lend their money, leading to greater volatility in interest rates. Here are some things to consider when deciding whether a fixed or variable or fixed home loan is best for you.

Protection against rising rates

If you’re certain that rates are going to go up, then you’ll want to lock in a lower rate. In the current environment, the banks are still predicting modest rates for the future so fixed rates may be cost effective. If rates do go up, you’ll be comforted to know that you’re paying less. But remember that at some point your fixed rate may increase and you’ll face an increase in your repayments, so make sure you prepare in advance.

Locking in your repayments

Fixing your loan is more than just beating a rate increase. For many people, knowing exactly what their home loan rate is going to be for the next few years can be reassuring. If you don’t have much room in the household budget, locking in your rate gives you the benefit of being able to plan well into the future.

Maintaining flexibility

If you fix your loan, you’re going to be locked into the same lender, same repayment and same loan amount for the duration of your fixed period. If you want to be able to change banks or make extra repayments, fixing your entire loan may not be the best idea for you.

Hedging your bets

An often promoted idea is to split your loan between fixed and variable. It seems like the ideal situation – you get to lock in some of your loan at a fixed rate and not risk of rates going up, while leaving some of your loan variable to give you a degree of flexibility. However, keep in mind that while you get the benefits of a fixed rate with the flexibility of a variable rate, you’re still locked into the one bank for the length of your fixed rate.  This means you can’t pursue a cheaper rate on your variable rate which could be problematic if your bank increases their rates faster than others.

Breaking up is hard to do

Keep in mind that if you want to get out of your fixed loan, it could cost you a lot in break fees and exit penalties. It’s impossible to work out at the start of the loan what your break costs will be because they are dependent on the prevailing rate at the time that you wish to break your contract.  Your loan contract is written so that should you break your loan, the bank will get compensated for anything that they lose by you leaving.  This could cost you thousands or tens of thousands of dollars.

You may also like

What are the pros and cons of ethical investing?

Here we discuss some of the pros and cons of ethical investing, so you can work out if it’s the right approach for you.

Read more

How to invest in a socially responsible way

Find out how you can invest in an ethical and socially responsible way that is aligned with your core values.

Read more
Talk to us


We’re so confident about creating value for you quickly, that we guarantee it with a 100% money-back guarantee.

Call us for a free strategy session

Arrange a call back

  • This field is for validation purposes and should be left unchanged.
Untitled-2 Untitled-2

Arrange a call back

  • This field is for validation purposes and should be left unchanged.

Our response to limit the spread of COVID-19

  • As COVID-19 continues to spread, we would like to take a moment to let you know what Financial Spectrum is doing to respond.

    While we haven’t been directly affected with any confirmed cases, we are taking all reasonable precautions to remain safe.Our priorities are:

    1. Keep our staff and clients safe
    2. Stay fully operational in our service delivery and continuing to manage your financial affairs
    3. Play our part in minimising the impact on our community against the spread of COVID-19

    Financial Spectrum has the technology, infrastructure and systems to continue business as usual remotely and our staff will now be working from home.

  • You should notice no change to our service, with the exception that we are encouraging our clients to meet via video call, rather than face to face, unless requested. We will be contacting all clients with meetings booked over the next two weeks with instructions for a video call.This is an evolving situation and we will continue to monitor developments. We will keep you informed of any material changes to our approach.

    These are unprecedented times and we understand that many of you will be feeling unsettled about your finances. We would like to assure you that we are open for business and are here to help you. If you don’t have a meeting booked but would like one, or if you have questions, please contact us at info@financialspectrum.com.au or on
    02 8238 0888

Brenton Tong

Managing Director

Google Review

Google Rating


Looking for something?