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Buying a home

How do fixed and variable mortgages work? 

23 January 2023

When it comes to home loans, there are two basic types: loans with a fixed interest rate period up front, and those with variable interest rates across the entire term of the loan. In this article, we’ll look at both options. We’ll also consider ‘split’ loans, which enable you to put a portion of your loan principal into a fixed rate, and the remainder into a variable rate.

What’s a fixed rate mortgage?

A fixed home loan enables you to lock in an interest rate for a set period of time.

During the fixed rate period, you’ll have the certainty your required repayment amount won’t change. That could save you money if interest rates rise, but it also means you may not see any benefit if interest rates fall. At the end of the fixed rate period, your loan will roll over to a variable rate, which will reflect market rates at the time.

Fixed rate home loans may also have restrictions on making repayments beyond your required repayments. For example, at Suncorp Bank, additional repayments of up to $500 in excess of your minimum monthly repayment are permitted with a Fixed Rate Home Loan. After that, an Early Payment Interest Adjustment Fee (EPIA) may apply.

Different home lenders will have different fees related to the early pay out of all or part of a fixed rate home loan. Be sure you understand these terms and how they may impact your own home buying journey. 

Why choose a fixed rate?

While it’s difficult to forecast interest rate changes, some home loan customers may choose a fixed rate if they believe interest rates could rise during the fixed rate period.

Others may choose a fixed loan to help them confidently plan their household budgets, or simply because they want the peace of mind that comes from knowing how much their repayments will be during the fixed rate period.

What’s a variable rate mortgage?

With a variable rate home loan, your interest rate isn’t locked in, so your required repayments could increase or decrease as interest rates rise and fall.

With variable rate loans, you generally have more flexibility to make extra repayments. This could save you money on interest over time.

Depending on your financial institution and the variable home loan options you choose, you may also have access to:

  • a redraw facility, where any extra repayments you make are accessible to redraw.
  • a mortgage offset account, which is a transaction account linked to your home loan, the balance of which ‘offsets’ the balance of your home loan principal.

Why choose a variable rate?

Some home loan customers may choose a variable rate home loan to access the additional level of flexibility that redraw and offset features provide. 

Others may believe that interest rates could trend downward, which may reduce repayment costs.

Splitting your loan 

If you’re not sure whether a fixed or variable home loan could be right for you, a split loan may be another option.

Splitting your loan is what the name suggests – typically your home loan principal will be divided into two portions, one variable and one fixed. For example, you could choose to apply 20% of your loan amount at a fixed rate and leave 80% at a variable rate. Home lenders can help you sort out what could be right for you and explain how it all works. 

Get expert assistance 

Talk to a Suncorp Bank home loan expert about your options. There’s no cost or obligation. For any home loan questions, the team at Suncorp Bank is here to help.

Chat with a home lender

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Home Loans are provided by Suncorp-Metway Ltd ABN 66 010 831 722 AFSL No. 229882 Australian Credit Licence 229882 (“Suncorp Bank”) to approved applicants only. Please read the relevant Product Information Document, Lending Fees and Charges and Home Package Plus Terms and Conditions before making a decision regarding any Suncorp Bank products. Fees, charges, terms and conditions apply and are available on request or on our Product Information Documents and Forms page.

The information is intended to be of a general nature only and any advice has been prepared without taking into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you before acting on it. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.

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