Fixed or variable mortgage in Australia: which is better?

Authored by the expert who managed and guided the team behind the Australia Property Pack

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How much is the average fixed mortgage rate in Australia right now compared to the average variable rate?

As of September 2025, average fixed mortgage rates in Australia sit at approximately 5.45% for 1-3 year terms, while variable rates average around 5.89%.

The fixed rate advantage varies by term length, with 1-year fixed rates averaging 5.42%, 3-year rates at 5.45%, and 5-year terms reaching 5.78%. Variable rates from major lenders like Commonwealth Bank start as low as 5.34% for their digital home loan products, though standard variable rates typically range between 5.89% and 6.15%.

This represents a significant shift from historical patterns where variable rates were often lower than fixed rates. The current inversion reflects market expectations of further Reserve Bank rate cuts throughout 2025 and into 2026, with economists from Australia's big four banks predicting at least one more 0.25% cut before year-end.

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For a standard $600,000 home loan over 30 years, this translates to monthly repayments of approximately $3,420 for fixed rates versus $3,580 for variable rates, representing a monthly saving of $160 by choosing fixed over variable in the current market.

How often do the Reserve Bank of Australia's rate changes affect variable mortgage repayments?

Variable mortgage repayments in Australia typically change within 1-2 weeks of Reserve Bank of Australia cash rate announcements.

The RBA meets monthly and announces rate decisions at 2:30 PM, with any changes taking effect the following day. Major lenders like Commonwealth Bank, ANZ, and Westpac usually announce their response within 24-48 hours and implement new rates within 5-10 business days. Banks automatically adjust your minimum repayments and notify you via letter, app, or internet banking before the change takes effect.

In 2025, the RBA has cut rates three times - in February, May, and August - each by 0.25%. Variable rate borrowers have benefited from each cut, with a typical $600,000 mortgage saving approximately $90 per month from each 0.25% reduction. This means borrowers have saved around $270 monthly since the rate-cutting cycle began.

Most lenders pass on the full rate cut to variable loans, though some may adjust their margins slightly. Fixed-rate loans remain completely unaffected by RBA changes until the fixed term expires, at which point they revert to the prevailing variable rate.

How much would my monthly repayments be on a $600,000 loan if I chose fixed versus variable?

On a $600,000 home loan over 30 years, your monthly repayments would be approximately $3,420 for a fixed rate (5.45%) versus $3,580 for a variable rate (5.89%) as of September 2025.

This $160 monthly difference amounts to $1,920 annually in favor of fixed rates. However, these calculations change significantly with rate movements. If variable rates drop by 0.25% (as many economists predict), variable repayments would fall to around $3,505, making them more attractive than fixed rates.

The specific amount also depends on your loan-to-value ratio, with borrowers putting down larger deposits often qualifying for discounted rates. For example, borrowers with LVRs of 70% or less may access rates 0.10-0.20% lower than standard rates.

For longer fixed terms, 5-year fixed rates average 5.78%, resulting in monthly repayments of approximately $3,550. Split loans allow you to hedge your bets - a 50/50 split would result in repayments of around $3,500 monthly, providing partial protection from rate rises while maintaining some flexibility.

What's the typical difference in upfront and ongoing fees between fixed and variable loans in Australia?

Upfront establishment fees for both fixed and variable loans typically range from $0 to $595, with many lenders offering $0 establishment fees as promotional offers throughout 2025.

Many lenders now offer competitive packages with $0 ongoing fees for both loan types, particularly for digital products. Fixed loans may require a rate lock fee of 0.10% of the loan amount if you want to secure your rate before settlement, while variable loans offer immediate access to offset accounts (usually for an annual fee of $150-$395).

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How much flexibility do I lose with a fixed mortgage if I want to make extra repayments or pay off the loan early?

Fixed mortgages in Australia typically limit extra repayments to $10,000-$30,000 per year without penalty, compared to unlimited extra repayments on variable loans.

Commonwealth Bank allows up to $10,000 in additional repayments annually on fixed loans, while institutions like Bank Australia cap it at $30,000. Exceeding these limits triggers break costs, which can range from several thousand to tens of thousands of dollars depending on your loan balance and remaining fixed term.

Most fixed loans also prohibit access to offset accounts during the fixed period, meaning you can't use everyday banking to reduce interest charges. Redraw facilities are generally unavailable until the fixed term ends, so any extra repayments are locked away until you transition to variable rates.

Variable loans offer unlimited extra repayments, immediate redraw access, and the ability to link offset accounts. This flexibility allows you to accelerate loan repayment without penalties and access surplus funds when needed.

Split loans provide a middle ground - you can make unlimited extra repayments on the variable portion while the fixed portion maintains its restrictions.

What are the break costs if I decide to refinance or sell my property while on a fixed-rate mortgage?

Break costs for exiting a fixed-rate mortgage early typically range from $5,000 to $25,000 or more, depending on your loan balance, remaining fixed term, and interest rate movements since you locked in your rate.

The calculation formula is: Break Cost = Loan Balance × Interest Rate Differential × Remaining Fixed Term. For example, with a $400,000 remaining balance, a 2% rate differential, and 3 years remaining, break costs could reach $15,000-$20,000.

Break costs are higher when market rates have fallen since you fixed your rate, as lenders lose money when you exit early. Conversely, if rates have risen since you fixed, break costs may be minimal or zero. Given that fixed rates in early 2025 were higher than current rates, many borrowers face substantial break costs.

Every lender calculates break costs differently using wholesale funding rates (Bank Bill Swap Rate). Banks like ANZ and Westpac factor in how much market rates have moved, while others use fixed formulas. Always request a formal break cost quote before making decisions, as estimates can vary significantly from actual costs.

How much could my repayments rise if variable rates increase by 0.25%, 0.5%, or 1% over the next two years?

On a $600,000 variable rate mortgage currently at 5.89%, your monthly repayments would increase as follows with rate rises.

A 1% increase would add $385 to your monthly repayments, totaling $4,620 more annually. However, most economists predict rate cuts rather than increases through 2025, with the big four banks forecasting another 0.25% cut by November 2025.

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How long do fixed-rate periods usually last in Australia, and what happens when they end?

Fixed-rate periods in Australia typically range from 1 to 5 years, with 1-3 year terms being most popular among borrowers seeking rate certainty without long-term commitment.

The most common fixed terms are 1 year (5.42% average), 2 years (5.44% average), 3 years (5.45% average), and 5 years (5.78% average). Some lenders offer 7-10 year fixed terms, but these are rare and carry significantly higher rates due to increased lender risk over longer periods.

When your fixed period ends, your loan automatically reverts to your lender's standard variable rate, which is typically higher than promotional variable rates offered to new customers. This reversion rate can be 0.50-1.00% higher than current market variable rates.

You have several options when your fixed term expires: accept the standard variable rate, negotiate a new fixed term, refinance to another lender, or switch to a promotional variable rate with your current lender. Most borrowers refinance or renegotiate rather than accepting the standard variable rate, as it's rarely competitive.

What percentage of Australians are currently choosing fixed over variable mortgages, and why?

As of September 2025, less than 3% of Australian borrowers are choosing fixed-rate mortgages, with the vast majority (97%+) opting for variable rates.

This dramatic shift toward variable rates reflects market expectations of continued rate cuts, with borrowers wanting to benefit from anticipated decreases rather than locking in current rates. The preference for variable rates is also driven by their superior flexibility, unlimited extra repayment options, and access to offset accounts.

Fixed rate uptake was much higher in 2021-2022 when rates were at historic lows and borrowers feared increases. Now, with rates having peaked and cuts underway, the psychology has reversed. Borrowers see fixed rates as potentially trapping them above market rates if cuts continue.

The small percentage choosing fixed rates typically includes risk-averse borrowers, retirees on fixed incomes, or first-time buyers prioritizing budget certainty over potential savings. Split loans account for a growing but still minor portion of new loans, appealing to borrowers wanting partial protection while maintaining some flexibility.

How do lenders' cashback offers or discounts differ between fixed and variable loans right now?

Cashback offers and discounts in Australia's mortgage market are generally available for both fixed and variable loans, with amounts ranging from $2,000 to $4,000+ for refinancing customers as of September 2025.

Most major lenders don't restrict cashback offers by rate type, instead focusing on loan purpose (refinancing typically attracts higher offers), loan amount (minimum $300,000-$500,000), and loan-to-value ratios (better offers for LVRs under 80%). Variable loans sometimes have broader availability for premium features that come with cashback packages.

Current promotional offers include establishment fee waivers ($0-$595 value), reduced ongoing fees, and enhanced package discounts. Some lenders offer additional incentives like discounted internet plans or fee-free offset accounts for variable loans, which aren't available with fixed products.

Package deals can provide 0.20-0.70% rate discounts for annual fees of $395, applicable to both fixed and variable loans. However, variable loans typically access more package features, making the annual fee more worthwhile. Refinancing remains the best way to access maximum cashback offers, regardless of whether you choose fixed or variable rates.

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How would a split loan—part fixed, part variable—change my repayments and flexibility compared to going fully one way?

A split loan combining fixed and variable portions offers a balanced approach, with repayments calculated as a weighted average of both rates and flexibility limited to the variable portion only.

For a $600,000 loan split 50/50 between fixed (5.45%) and variable (5.89%), your monthly repayments would be approximately $3,500, sitting between the $3,420 for fully fixed and $3,580 for fully variable. You can choose any split ratio - 60/40, 70/30, or 80/20 - depending on your risk tolerance and flexibility needs.

The variable portion allows unlimited extra repayments, redraw access, and offset account linking, while the fixed portion provides rate protection but with restricted additional payments (typically $10,000-$20,000 annually). Break costs only apply to the fixed portion if you exit early.

Split loans shine during uncertain rate environments, offering partial protection from increases while capturing some benefits from decreases. They're particularly suitable for borrowers with irregular income who need flexibility but want some payment certainty. However, split loans require more complex management and may have higher ongoing fees due to maintaining multiple loan accounts.

How do my personal financial goals—stability, paying off quickly, or flexibility—align with fixed versus variable in the current Australian market?

Your choice between fixed and variable mortgages should align with your primary financial objectives and risk tolerance in Australia's current declining rate environment.

For stability and budget certainty: Fixed rates provide predictable repayments, ideal for tight budgets, retirees, or first-time buyers. Current fixed rates around 5.45% offer lower repayments than variable rates, providing immediate budget relief plus protection from potential future increases.

For paying off loans quickly: Variable loans excel due to unlimited extra repayments without penalties. With rates potentially falling further, you benefit from lower interest costs while accelerating principal reduction. Offset accounts can maximize tax-effective savings by reducing taxable interest.

For maximum flexibility: Variable loans provide access to redraw facilities, offset accounts, and the ability to refinance without break costs. This suits borrowers with irregular income, property investors, or those planning major life changes.

Given September 2025's market conditions with expected further rate cuts, variable loans currently offer superior value for most borrowers. Fixed rates only make sense if you prioritize certainty over potential savings or believe rates will rise contrary to expert predictions.

What happens to my repayments if I choose a 5-year fixed rate versus shorter terms?

Choosing a 5-year fixed rate in Australia typically results in higher monthly repayments compared to shorter fixed terms, with 5-year rates averaging 5.78% versus 5.45% for 1-3 year terms as of September 2025.

On a $600,000 loan, a 5-year fixed rate would cost approximately $3,550 monthly compared to $3,420 for shorter fixed terms. This $130 monthly premium ($1,560 annually) reflects the additional risk premium lenders charge for longer-term rate commitments.

However, 5-year fixed rates provide extended protection from rate volatility and eliminate the need to renegotiate in 1-3 years when rates might be higher. This extended certainty suits conservative borrowers, retirees, or those planning major life changes where payment stability is crucial.

The trade-off is significant: higher immediate costs, extended commitment to break costs, and missing potential benefits from rate cuts over five years. Given current market expectations of continued rate decreases, shorter fixed terms or variable rates may prove more cost-effective than locking in for five years.

Which major Australian banks are offering the most competitive rates for fixed versus variable loans?

As of September 2025, Commonwealth Bank offers some of the most competitive variable rates at 5.34% through their Digi Home Loan, while Macquarie and smaller lenders often lead fixed rate competition with rates starting from 4.59% for green home purchases.

The big four banks (CBA, ANZ, Westpac, NAB) typically offer rates within 0.10-0.20% of each other, with promotional rates varying by loan features and borrower profile. CBA's digital product advantage comes from lower operating costs, while ANZ and Westpac offer competitive package deals with 0.20-0.70% discounts for premium customers.

Smaller lenders and credit unions often beat major bank rates by 0.20-0.50%, though they may offer fewer features or higher fees. Online lenders particularly excel in fixed rate pricing, benefiting from lower overheads and targeted customer acquisition strategies.

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Rate competitiveness changes frequently, with lenders adjusting rates multiple times monthly based on funding costs and competitive positioning. The lowest advertised rates often require specific criteria like low LVRs, large loan amounts, or professional occupation discounts.

How do offset accounts work with fixed versus variable mortgages in Australia?

Offset accounts are only available with variable rate mortgages in Australia, as fixed-rate loans cannot accommodate the daily interest calculations required for offset functionality.

Variable rate offset accounts reduce your loan interest by offsetting your everyday banking balance against your mortgage principal. For example, maintaining $50,000 in your offset account on a $600,000 loan means you only pay interest on $550,000, potentially saving thousands annually in interest charges.

Most lenders charge $150-$395 annually for offset account access, but the savings typically far exceed the fee for balances over $10,000-$15,000. Offset accounts are fully flexible - you can deposit salary, pay bills, and withdraw funds while continuously reducing your mortgage interest.

Fixed-rate borrowers miss this tax-effective savings opportunity entirely. When your fixed term expires and you revert to variable rates, you can then add an offset account, but you lose years of potential interest savings during the fixed period.

Split loans allow offset accounts on the variable portion only, providing partial benefits while maintaining some fixed-rate certainty.

What are the current trends in Australian mortgage interest rates for the rest of 2025?

Australian mortgage interest rates are expected to continue declining through the remainder of 2025, with economists from the big four banks predicting at least one more 0.25% cash rate cut by November.

The Reserve Bank has already delivered three rate cuts in 2025 (February, May, and August), bringing the cash rate from 4.35% to 3.60%. ANZ economists specifically predict another cut in November, which would bring the cash rate to 3.35% by year-end.

This downward trend benefits variable rate borrowers immediately, while fixed rates have already priced in expected cuts. Variable rate borrowers with a $600,000 mortgage have already saved approximately $270 monthly since cuts began, with potential for another $90 monthly saving if November predictions prove correct.

Inflation sitting at 2.7% annually (within the RBA's target band for two consecutive quarters) supports continued easing. However, global uncertainties including potential trade tensions could affect the pace of cuts, making the exact timing unpredictable while the overall direction remains downward.

How do investment property loans differ between fixed and variable rates in Australia?

Investment property loans in Australia typically carry interest rates 0.20-0.50% higher than owner-occupier loans for both fixed and variable products, with current investment rates averaging 5.75% for fixed and 6.15% for variable as of September 2025.

Investment loans favor variable rates even more strongly than owner-occupier loans due to tax deductibility of interest payments and the need for flexibility. Property investors benefit from unlimited extra repayments on variable loans to optimize tax outcomes and manage cash flow from rental income.

Fixed-rate investment loans provide cash flow certainty for budgeting rental returns but limit the ability to make strategic extra repayments during high-income periods. The higher break costs on investment loans (due to larger loan amounts) make early exit particularly expensive, often $10,000-$30,000 or more.

Interest-only options are more commonly available on investment loans, allowing investors to maximize tax deductions while preserving capital for additional investments. Variable rates offer better access to interest-only features and easier switching between payment types as investment strategies evolve.

What should first-time home buyers consider when choosing between fixed and variable rates?

First-time home buyers in Australia should prioritize budget certainty and take advantage of current fixed rates being lower than variable rates, while considering their long-term financial growth potential.

With the expanded First Home Guarantee scheme allowing 5% deposits without lender's mortgage insurance from October 2025, many first-time buyers will have higher loan-to-value ratios and tighter budgets. Fixed rates provide predictable repayments, crucial for buyers adjusting to homeownership costs alongside mortgage payments.

However, first-time buyers often experience income growth over their first few years of homeownership. Variable loans allow unlimited extra repayments to capitalize on salary increases, while fixed loans restrict additional payments to $10,000-$30,000 annually. Young buyers may benefit more from rate decreases on variable loans over time.

Consider a split loan approach: fix 60-70% for budget security while keeping 30-40% variable for flexibility as your financial situation improves. This provides immediate payment certainty while maintaining options to accelerate loan repayment or access features like offset accounts as your banking needs become more sophisticated.

How do mortgage broker recommendations differ for fixed versus variable loans in current market conditions?

Australian mortgage brokers are predominantly recommending variable rates in September 2025, citing the expectation of continued rate cuts and superior loan features over the current rate cycle.

Brokers emphasize that with fixed rates having already priced in expected cuts, variable loans offer better value proposition for most borrowers. The current 0.44% gap between variable (5.89%) and fixed (5.45%) rates narrows quickly if just one more 0.25% cut occurs, making variable loans more attractive financially.

Broker recommendations vary by client profile: young professionals and property investors are steered toward variable loans for flexibility and offset benefits, while retirees and budget-conscious buyers may still be advised to consider shorter fixed terms for certainty.

Many brokers now recommend split loans as a compromise, typically suggesting 70% variable and 30% fixed to capture most flexibility benefits while providing some rate protection. This approach acknowledges that while cuts are expected, the exact timing and magnitude remain uncertain in current economic conditions.

Conclusion

This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.

Who is the author of this content?

BAMBOOROUTES

A team specialized in real estate investing in APAC countries (Japan, Thailand, Indonesia, Australia, etc.).

We are a team of financial experts, legal professionals, developers, and local real estate specialists dedicated to helping people like you avoid mistakes when investing in real estate in a foreign place, particularly in Australia. If you'd like to learn more about us, you can check our presentation page.

Sources

1. Commonwealth Bank Home Loan Interest Rates
2. ANZ Home Loan Interest Rates
3. Westpac Personal Banking Home Loan Rates
4. Macquarie Home Loan Rates
5. Money.com.au Fixed Rate Home Loans
6. Canstar Interest Rate Forecast Australia
7. Finder Fixed Rate Home Loan Break Costs
8. Bank Australia Home Loan Rates and Fees
9. Mozo Home Loan Statistics Australia
10. Trading Economics Australia Mortgage Rate