Fixed vs Variable: What's the Right Loan for You?

Choosing Between Fixed, Variable, and Split Loans

A fixed rate locks your interest rate for a set period, a variable rate moves with the market, and a split loan combines both. Your choice depends on how much certainty you need in your repayments, whether you want flexibility to make extra payments, and how you expect interest rates to move.

For Queensland first home buyers using the 5% Deposit Scheme, the loan structure you choose affects more than just your repayments. It shapes how you manage your offset account, whether you can make lump sum payments without penalty, and how quickly you can reduce your loan balance. Each structure has trade-offs, and the right one depends on your income stability, savings pattern, and whether you plan to sell or refinance in the next few years.

How Fixed Rate Loans Work

A fixed rate loan holds your interest rate steady for a set term, typically between one and five years. Your repayments stay the same regardless of what happens in the broader market. If rates rise, you're protected. If rates fall, you keep paying the original rate.

Fixed loans usually come with limits on extra repayments, often capped at $10,000 to $30,000 per year depending on the lender. If you break the loan early by refinancing or selling, you may face break costs calculated on the difference between your fixed rate and the lender's current cost of funds. These costs can run into thousands of dollars if rates have dropped significantly since you locked in.

Offset accounts are rarely available on fixed rate loans. Some lenders offer a redraw facility, but this doesn't reduce interest in real time the way an offset does. Consider a buyer who fixes at a rate they think is favourable, then receives an inheritance six months later. If they want to park that money against the loan to reduce interest, a fixed loan without an offset won't help them. They can make an extra repayment up to the cap, but any funds beyond that limit either sit in a separate savings account earning taxable interest, or trigger break costs if they try to pay down the loan further.

How Variable Rate Loans Work

A variable rate loan moves with the lender's standard rate, which typically follows the Reserve Bank's cash rate. When rates drop, so do your repayments. When rates rise, you pay more.

Variable loans offer flexibility that fixed loans don't. You can usually make unlimited extra repayments without penalty, and most variable loans come with an offset account. An offset account is a transaction account linked to your loan. The balance in the offset reduces the amount of interest charged each month without locking those funds away. If you have $20,000 in your offset and owe $450,000 on your loan, you're only charged interest on $430,000.

This structure suits buyers who expect irregular income, like bonuses or commissions, or who want to keep savings accessible while still reducing interest costs. A variable loan also means you can refinance or increase your repayments without worrying about break costs.

How Split Loans Work

A split loan divides your borrowing between a fixed portion and a variable portion. You might fix 50% of the loan and leave 50% variable, or choose any other ratio that suits your situation.

The fixed portion gives you certainty on part of your repayment, while the variable portion gives you flexibility to make extra payments and use an offset account. In our experience, buyers who split their loans often fix the portion that covers their minimum living expenses, then direct any surplus income or savings into the variable portion where it can offset interest immediately.

Consider a buyer borrowing $480,000 under the 5% Deposit Scheme in Queensland. They fix $240,000 for three years and leave $240,000 variable with a full offset account. Their fixed repayments stay steady, giving them confidence they can cover the mortgage even if their income dips. Meanwhile, they funnel their savings into the offset account linked to the variable portion. Over three years, if they build the offset balance to $60,000, they're only paying interest on $180,000 of the variable portion. When the fixed term ends, they can reassess and either fix again, leave the entire loan variable, or adjust the split based on what rates are doing at the time.

Which Structure Fits Your Budget and Plans

Your loan structure should match your cash flow, savings habits, and timeline. Fixed loans suit buyers who need predictable repayments and won't have extra funds to put toward the loan in the short term. Variable loans suit buyers with stable income who want the option to pay down debt faster or build an offset balance. Split loans suit buyers who want both certainty and flexibility.

Think about how your income flows. If you're paid a salary with no variation, and your budget is tight, fixing gives you protection from rate rises and makes it simpler to plan. If you receive bonuses, commissions, or expect lump sums from tax returns or family gifts, a variable loan with an offset lets you put that money to work immediately. If your income is stable but you want some protection from rate movements without giving up all flexibility, a split loan lets you hedge.

Also consider your timeline. If you're buying a unit as a stepping stone and plan to upgrade in two or three years, a variable loan avoids the risk of break costs when you sell. If you're buying a home you plan to stay in for a decade or more, fixing part of the loan can smooth out the early years while you build equity.

What Happens When Your Fixed Term Ends

When a fixed rate term expires, the loan automatically moves to the lender's variable rate unless you choose to refix or refinance. The variable rate after a fixed term ends is often higher than the lender's standard ongoing variable rate for new borrowers, so this is a good time to review your options.

If rates have dropped since you first fixed, you might find a lower rate elsewhere. If rates have risen, you might want to fix again for another term. Either way, the end of a fixed term is a decision point, not a set-and-forget event. Buyers who don't act at this point often end up on a revert rate that costs them hundreds of dollars extra each month. You can read more about managing this transition at Fixed Rate Expiry.

Using Offset Accounts and Redraw Facilities

An offset account reduces the interest you pay without locking your money away. A redraw facility lets you access extra repayments you've already made, but the funds are held within the loan structure rather than in a separate transaction account.

Variable loans usually offer a full offset account. Fixed loans rarely do, and when they do, the offset often only applies to a portion of the balance or comes with conditions. Split loans give you an offset on the variable portion but not the fixed portion.

Redraw is available on some fixed and variable loans, but it's not the same as an offset. With redraw, you make extra repayments, then apply to withdraw them later if needed. The lender can restrict or remove redraw access in some circumstances, and funds in redraw don't reduce your interest daily the way an offset does. Offset accounts are usually the stronger option if you want both flexibility and ongoing interest savings.

Applying for a Home Loan with the Right Structure

When you apply for a home loan, the lender assesses your income, expenses, and deposit to determine how much you can borrow. The loan structure you choose doesn't usually affect your borrowing capacity, but it does affect how you manage the loan after settlement.

If you're accessing first home owner grants or first home buyer stamp duty concessions in Queensland, you can use those savings to boost your deposit or cover settlement costs, then choose the loan structure that suits your cash flow. Most participating lenders under the 5% Deposit Scheme offer fixed, variable, and split options, so you're not locked into one structure just because you're using a government-backed loan.

The application process involves pre-approval, a formal application, and settlement. During pre-approval, you can discuss loan structures with your broker and model different scenarios based on your income and savings patterns. Once you're approved, you can lock in your rate and structure before settlement.

If you're weighing up how much you can borrow based on your income and expenses, our Borrowing Capacity page has tools to help you estimate your position. If you're combining the 5% Deposit Scheme with other strategies like a family guarantee, our Guarantor Loans page explains how that works and what it means for your loan structure.

Call one of our team or book an appointment at a time that works for you. We'll walk through the fixed, variable, and split options available from participating lenders, show you what each structure costs over time, and help you choose the one that fits your budget and plans. You can reach us at Book Appointment.

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