Fixed or Variable? – Navigating what’s right for you.

With interest rates in Australia a hot topic, many borrowers are feeling unsure about
what is to come. The Reserve Bank of Australia (RBA) has hiked the cash rate
consecutively at its first 2 meetings for the year with potential for more increases to
come. So, what is influencing the RBA’s decision? The higher then expected
inflation, global economic conditions such as the conflict in the Middle East affecting fuel prices, higher demand and lower then expected unemployment all impact the RBA’s cash rate decision.

With all the uncertainty around interest rates, one of the most common questions I’m asked at the moment is: “Should I fix my home loan or keep it variable?” It’s a great question, and an important one, but the answer isn’t the same for everyone. Let’s break it down in simple terms so you can understand your options and feel more confident in your decision.

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What’s the difference?

A variable rate loan means your interest rate can move up or down over time, usually in line with changes from the RBA. Your repayments can change, which means less certainty, but more flexibility.

A fixed rate loan locks in your interest rate for a set period (typically 1–5 years). Your
repayments stay the same during that time, giving you predictability and peace of
mind.

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The case for fixing

Fixing your rate can be appealing, especially when there’s uncertainty in the market.
The biggest advantage is certainty. You know exactly what your repayments will be,
which can make budgeting much easier, particularly for families or anyone managing tight cash flow. It can also provide protection if interest rates rise further. You’re essentially locking in today’s rate and shielding yourself from future increases.

However, there are trade-offs. Fixed loans often come with less flexibility. Extra repayments may be limited, most banks will not allow you to offset a fixed rate loan and if you want to refinance or sell during the fixed period, you could face break costs, which can be significant.

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The case for staying variable

Variable loans offer flexibility, which is a big plus for many borrowers. You can usually make extra repayments, offset your loan, redraw funds if needed, and refinance more easily. This can be helpful if your circumstances change or you want to take advantage of better deals down the track.

Another advantage is that if interest rates do fall, your repayments could decrease,
something you won’t benefit from if you’re locked into a fixed rate. The downside? Uncertainty. If rates rise, your repayments will subsequently increase, which can put pressure on your budget and cashflow. So, what should you do? This is where it gets personal. There’s no “one-size-fits-all” answer because the right choice depends on your individual circumstances. Things like your income stability, financial goals, risk tolerance, and how much flexibility you need must be considered when making the decision. For example:

• If interest rates are keeping you up at night and you value certainty and want to lock in your repayments, fixing may suit you.
• If you’re comfortable with some movement and want flexibility because your circumstances may be changing in the near future, staying variable could be the better option.
• For many people, a split loan (part fixed, part variable) can offer a nice balance of both.

It’s also worth remembering that trying to “time the market” perfectly is incredibly
difficult, even for professionals so understanding what’s important to you is key.
The decision to fix or stay variable isn’t about picking the “right” option- it’s about
choosing what’s right for you. That’s why having a tailored conversation is so
important.

A strategy that works well for your neighbour or colleague might not be the best fit for your situation. If you’re unsure, I’d encourage you to reach out and book in a discovery appointment. We can look at your current loan, your goals, and the latest market conditions to help you make a confident, informed decision that suits you and your lifestyle.