Fixed vs Variable Rate Home Loans in 2024: What to Choose

The fixed vs variable question is one of the most common I get asked. And the honest answer is: it depends entirely on your situation, not on what the RBA is expected to do next.

Here's a framework for thinking about it clearly.

A fixed rate locks in your interest rate for a set period, usually one to five years. During that period, your repayments stay the same regardless of what the RBA does.

The advantages: certainty, budget predictability, and protection if rates rise.

The disadvantages: if rates fall, you don't benefit. Most fixed loans restrict or prohibit extra repayments. Break costs if you need to exit the loan early can be substantial. And you generally can't have an offset account on a fixed loan.

A variable rate moves with the lender (who typically follows the RBA cash rate). When the RBA cuts, your rate should fall. When it rises, so does your rate.

The advantages: flexibility, usually allows unlimited extra repayments, offset accounts available, easier to refinance or sell without break costs.

The disadvantages: uncertainty. If rates rise, your repayments increase. Budgeting is harder.

Most people make the fixed vs variable decision by trying to predict where rates are going. This is understandable but almost always wrong.

Economists, RBA board members, and professional fund managers consistently fail to accurately predict rate movements over a one to three year horizon. You are very unlikely to outsmart them.

The better question is not "will rates go up or down?" but "what can I afford if rates move against me, and how much certainty do I actually need?"

Fixed rates suit borrowers who:

Have a tight budget and need certainty about repayments. A rate rise of 0.5% on a $600k loan is about $180 per month. If that would cause genuine stress, fixing gives you protection.

Are in a rising rate environment and the fixed rate is meaningfully below where rates might go.

Don't plan to make large lump-sum repayments or sell within the fixed period.

In 2024, with rates potentially at or near their peak, short-term fixes (one to two years) may appeal to borrowers who want to lock in current rates before expected cuts arrive, while not missing out on falls for too long.

Variable rates suit borrowers who:

Have financial flexibility and can absorb rate movements without stress.

Want to make extra repayments or plan to pay the loan down aggressively.

May need to sell or refinance within the next one to three years.

Expect rates to fall and want to benefit from cuts as they come through.

Many borrowers split their loan: part fixed, part variable. For example, $400k fixed for two years and $200k variable. This gives you some rate certainty while keeping flexibility on the variable portion.

It's not always the right answer but it's worth considering when you're genuinely unsure.

If certainty matters more to you than flexibility, fix. If flexibility matters more than certainty, go variable. If you're genuinely undecided, split.

What matters most is that the loan structure matches your actual life and risk tolerance, not what some analyst thinks the RBA will do in March.

Book a free chat and we'll work through which option actually fits your situation.