Choosing between a fixed, variable or split rate comes down to how much certainty you need and how much flexibility you want. Neither option is right for everyone, and the answer depends on your budget, your plans and your comfort with change.
The interest rate on your home loan is one of the biggest factors in what you pay each month. The RBA cash rate sits at 4.85% p.a. as at 6 November 2026. Lenders set their own home loan rates, so what you pay depends on your lender, your deposit size and your loan type.
Variable Rate vs Fixed Rate: Which Suits You?
A variable rate can move up or down over the life of your loan, while a fixed rate stays the same for an agreed period. Variable suits borrowers who want flexibility, and fixed suits those who want predictable repayments.
Variable rate loans often come with features such as an offset account, extra repayments and redraw. The trade-off is that your repayments can rise if your lender lifts its rate.
Fixed rate loans lock in your repayment for a set term, which makes budgeting easier. The trade-off is that extra repayments are usually capped, and leaving the loan early can trigger break costs. Many fixed loans also limit or exclude an offset account, so check this before you sign.
How a Split Rate Home Loan Works
A split loan divides your loan amount into two parts, one fixed and one variable. You get some certainty on one portion and keep flexibility on the other.
As an example, consider a borrower with a $600,000 loan who splits it evenly. Using an illustrative rate of 6.75% p.a. on both portions over 30 years, principal and interest repayments on each $300,000 portion would be about $1,946 a month, or about $3,892 in total. That is the same as a single $600,000 loan at that rate, because the split only matters once the rates on each part begin to differ.
In this scenario, the borrower keeps the variable half linked to an offset account and makes extra repayments there. The fixed half stays steady. During the fixed term, only the variable half is affected if rates rise, and only the variable half benefits if rates fall. When the fixed term ends, the loan usually reverts to the lender's variable rate, so review your loan or re-fix before then. The outcome is a balance between certainty and flexibility, and the cost is that you will not get the full benefit of either path.
If you are building a granny flat, a split loan for granny flat construction can let you fix the existing home loan while the construction funds stay variable.
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Does a Lower Interest Rate Always Mean Lower Costs?
No. A lower advertised rate can be outweighed by higher fees, fewer features or a rate that only applies for a short time. Compare the full cost of a loan, not just the headline number.
When you compare home loan packages, look at annual fees, offset access, redraw rules and whether the rate discount applies for the whole loan or only an introductory period. A package with a small ongoing fee may still suit you if it gives you a meaningful rate discount and a linked offset account.
Your loan to value ratio (LVR) also affects pricing. Borrowers with a smaller deposit may pay a higher rate, and may also pay Lenders Mortgage Insurance (LMI), which is a one-off cost that protects the lender, not you. Lenders set these thresholds differently, so it pays to compare.
Interest Only vs Principal and Interest Repayments
Interest-only repayments cover just the interest for a set period, while principal and interest repayments also reduce the loan balance. Interest only gives lower repayments in the short term, but you do not build equity through repayments during that time.
As an example, on a $500,000 loan at an illustrative 6.75% p.a., interest-only repayments would be about $2,813 a month. Principal and interest over 30 years at the same rate would be about $3,243 a month. If you take five years of interest only, the loan then reverts to principal and interest over the remaining 25 years. At the same rate, that repayment would be about $3,455 a month, because the same balance is repaid over a shorter time.
The trade-off is clear. You pay less now, but more later, and you pay more interest overall than you would with principal and interest from the start. Interest-only is common among investors, and the right choice for an investor can depend on tax. Speak to your accountant about how interest deductions apply to your situation.
If you are weighing this up for a rental dwelling, our page on interest-only construction loans explains how the structure can work during a build.
How to Compare Home Loan Rates Properly
To compare home loan rates properly, look at the rate, the fees, the features and the repayment together. A comparison rate helps, but it will not show every feature that matters to you.
Start by working out what you need. If you want to pay down the loan faster, an offset account may be worth more to you than a small rate cut. If you want certainty, a fixed portion may matter more than extra features.
Use the mortgage repayment calculator to test different rates and loan amounts. Then check your borrowing capacity, because the rate a lender uses to assess you is often higher than the rate you will actually pay.
An existing loan is worth a regular review too. A loan health check can show whether your current rate and features still suit you, or whether a refinance could make sense. Refinancing has costs, such as discharge and setup fees, so the saving needs to outweigh them.
Using Your Rate Choice to Build Equity
The loan structure you choose affects how quickly you build equity. Extra repayments, an offset account and principal and interest repayments all reduce the balance faster, which can open up future options.
That equity can later help fund renovations or a second dwelling. If that is on your radar, read about how to use home equity to build a granny flat before you lock in a structure that limits your flexibility.
An experienced broker can compare options from a panel of lenders and explain the trade-offs in plain terms. Call one of our team or book an appointment at a time that works for you, and we will help you choose a rate structure that fits your plans.
Frequently Asked Questions
What is the difference between a fixed and variable home loan rate?
A fixed rate stays the same for an agreed period, which makes repayments predictable. A variable rate can move up or down, and usually offers more features such as an offset account and extra repayments.
How does a split rate home loan work?
A split loan divides your loan into a fixed portion and a variable portion. You get some repayment certainty while keeping flexibility on the variable part, though you will not get the full benefit of either rate. When the fixed term ends, that portion usually reverts to the lender's variable rate.
Are interest-only repayments cheaper?
They are lower in the short term because you only pay the interest. Once the interest-only period ends, repayments rise because the balance is repaid over a shorter time, and you pay more interest overall.
Is the lowest rate always the right choice?
Not always. Fees, features, offset access and whether a discount lasts the full term can change the true cost of a loan, so compare the whole package.
