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Fixed, variable or split: Which home loan type is right for you?

Understanding the different types of home loans can be confusing, especially for first home buyers. We’ve outlined the differences to help you determine the most suitable home loan type for you.

What is a fixed home loan?

Fixed home loans mean the interest rate is fixed for a set period between one and five years. Even if the official cash rate changes, your interest rates and repayments will remain the same for the set period.

The interest rate generally defaults to a variable rate once you reach the end of your fixed-term period, however, you have the option to fix it again on the current interest rate for up to five years, refinance, or roll onto a variable rate.

Pros

Fixed rate home loans

​ Protected against interest rate rises
​ Consistent loan repayment amounts
​ Easier to budget and organise finances with certainty

Cons

Fixed rate home loans

​ If interest rates drop, you're locked into a rate
​ Usually limited access to loan features such as redraw, offset, and extra repayments
​ A break fee will apply if you refinance, overpay your loan, or sell your property

Fixed rate loans aren't just for owner-occupiers. They can also appeal to investors who aren't looking to pay off their investment property loan quickly or who value the fixed repayment amounts each month. 

What is a variable home loan?

Variable home loan rates can change over time and are determined by the official RBA cash rate, or your lender may change the rate. If interest rates decrease, you’ll enjoy a lower repayment amount, however, if interest rates increase, your repayments will also increase.

People choose variable home loans due to the flexibility; you can easily make extra repayments, add an offset account or redraw facility, or refinance.

Pros

Variable rate home loans

​ When interest rates drop, your minimum repayment amount drops too
​ Most variable home loans let you make extra repayments
​ You can refinance at any time
​ Redraw facilities or offset accounts usually available

Cons

Variable rate home loans

​ If interest rates rise you could pay more
​ Your repayment amount will likely change, meaning less budget certainty
​ Lenders can change their interest rates independent of RBA cash rate decisions
 

What is a split home loan rate?

You might decide a split rate home loan would suit you best. A split rate home loan allows you to split the total loan value into two loans, one fixed and the other variable.

Essentially, this gives you the best of both worlds so you can have the option to make extra repayments on your variable loan but also know your fixed home loan won’t be affected by changes in rates.

Pros

Split rate home loans

​Greater flexibility on the variable portion of the home loan with access to all of the benefits, such as redraw, offset, and extra repayments
​ Knowing the fixed portion of your home loan is secure and unaffected by changes in rates
​When interest rates drop, your minimum repayment amount on the variable portion of your loan drops too
 

Cons

Split rate home loans

​ Not available for all home loans
​ If interest rates drop, the fixed portion of your loan is locked into a rate
​ If interest rates increase it will affect the variable portion of the loan, meaning less certainty
​ If you decide to refinance or change loans during the fixed term period, you could be charged extra fees

 

Important information

Banking and Credit products issued by Police & Nurses Limited (BCU Bank).

Any advice does not take into account your objectives, financial situation or needs. Read the relevant terms and conditions, before downloading apps or acquiring any product, in considering and deciding whether it is right for you. The Target Market Determinations (TMDs) are available on our website or upon request.