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Difference between variable and fixed rate home loans


The difference between variable and fixed rate home loans

Looking for the perfect home... loan? There’s a lot to think about, like whether a fixed or variable rate is right for you. Read on for your guide to understanding both.

What is a fixed rate home loan and how does it work?

With a fixed rate home loan, your interest rate will stay the same for a set amount of time. Once the term is up, you could choose a new fixed rate or go onto to a variable rate.

Here’s the perks of a fixed rate home loan:

  • Your interest rate and mortgage repayments won’t change, so there’ll be no surprises at the end of each month
  • You can choose how long you want to fix your rate for. At UBank, we have one, three and five-year options
  • Some banks (we’re one of them!) have no ongoing fees

What is a variable rate home loan?

With a variable rate home loan, your interest rate could change depending on a number of factors that influence your bank’s cost of funds and therefore pricing, one of which is the official cash rate set by the Reserve Bank of Australia (RBA).

Sounds technical, doesn’t it? Basically, the RBA meets every month to decide what the official cash rate should be. If they change it, your bank might rejig their interest rates meaning your mortgage repayments could change too.

Variable interest rate home loans aren’t as steady as fixed loans, but there’s great perks, like:

  • Some banks (including us) let you make unlimited extra repayments and redraw surplus funds
  • If interest rates go down so will your repayments, which might mean more cash to treat yo’self or put towards another savings goal
  • Some banks (guess who!) have no application or ongoing fees.

Is it better to have a fixed or variable loan?

It depends on whether you want the security of a fixed rate or the flexibility of a variable rate. No one knows if interest rates will go up or down, so do whatever works best for you in your current situation.

With us, you can also split your loan which allows you to divide your total loan amount into buckets, each with a different rate type and/or repayment type. You might decide to split your loan to hedge your bets and soften the overall impact of rate changes (up or down).

Plus, it could help you own your home sooner by making extra repayments, or let you use the equity in your house for lifestyle purposes – like purchasing a new car.

Split loans may be suitable for people looking to take advantage of the security of a fixed rate with the flexibility of a variable rate.

Things to check out when choosing a home loan

With fixed home loans, the rate that’s advertised when you apply might not be the same when you settle. Take a look at banks that let you lock it in for a low cost.

Pro tip: Unsure about how a rate lock fee could impact your mortgage repayments? Check out and compare home loan comparison rates which factor in all charges.

Also, with fixed rate home loans there might be a few more rules. To make sure you’re not out of pocket, ask what happens if you end your fixed term early or make extra repayments above the bank’s limit.

The fixed or variable choice is an important one and there’s benefits to both. Ultimately, it comes down to what suits you when you’re ready to lock in a home loan. If that’s where you’re at, make sure you’ve checked out our competitive home loan rates for either option.


© UBank is a division of National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. Credit is provided by AFSH Nominees Pty Ltd ABN 51 143 937 437 Australian Credit Licence 391192. UBank is the mortgage manager for UHomeLoan products. Terms of use available here. Are you experiencing financial difficulty? See how we can help.

UHomeLoan info: Govt charges may apply. The comparison rate is based on a secured loan of $150,000 over the term of 25 years. WARNING: This comparison rate is true only for the examples given & may not include all fees & charges. Different terms, fees or other loan amounts might result in a different comparison rate. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

The information contained in this article is of a general nature only. It doesn’t take account of any person’s objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate for your circumstances and seek independent legal, financial, and taxation advice.