Whenever a rate rise looks likely, the same question arrives in a lot of households at once: should we fix? It’s a reasonable instinct. Certainty feels valuable when your repayments keep climbing. But fixing has costs that aren’t obvious, and the timing catch catches plenty of people out. Here’s the plain-language guide to fixed, variable and split loans, and how to think about the choice.
How Each Option Works
A variable rate moves with the market. When your lender changes its rates, usually following the Reserve Bank, your repayments change too. A fixed rate locks your interest rate for a set period, commonly one to five years, so your repayments stay the same for that term. A split loan divides your loan into two parts, one fixed and one variable, in whatever proportion you choose.
The difference shows up clearly when rates move.
The Case for Fixing
Fixing buys certainty. If your budget is tight and another rise would genuinely hurt, knowing your repayment won’t change for two or three years can be worth a lot, both financially and for peace of mind. It makes planning easier and protects you if rates climb further than expected.
The Catch Most People Miss
Here’s the part that surprises people: lenders set fixed rates based on where they expect rates to go. If a rate rise is widely expected, as one currently is, that expectation is usually already built into fixed rates before the Reserve Bank moves.
So fixing now often doesn’t mean dodging the rise. You may simply be paying for it in advance, sometimes at a rate higher than the current variable. That doesn’t make fixing wrong, but it means the question isn’t “fix before the rise”, it’s “is this fixed rate worth it for the certainty it gives me?”
What You Give Up When You Fix
Certainty comes with trade-offs. Fixed loans often cap how much extra you can repay each year, and many limit or exclude offset accounts and redraw. If rates fall during your fixed term, you won’t benefit. And if you need to sell, refinance or pay off the loan early, you may face break costs, which can be substantial when rates have fallen since you fixed.
That last point matters. Life changes. If there’s a realistic chance you’ll need to sell or refinance during the fixed term, weigh the break cost risk carefully.
Why Many People Split
A split loan is a way of not having to be right. Fixing part of the loan gives you certainty on that portion, while keeping part variable preserves flexibility, extra repayments and offset access on the rest. If rates rise, the fixed part is protected. If they fall, the variable part benefits.
There’s no magic proportion. Some borrowers fix the amount they’d struggle to cover if repayments rose, and keep the rest variable for flexibility.
Questions to Ask Before You Decide
A few questions help cut through it. Could you cope with a further rise on a variable rate, or would it cause genuine hardship? How likely is it you’ll sell or refinance during a fixed term? How important are extra repayments and an offset account to your plans? How does the fixed rate on offer compare with your current variable rate, and what’s the break cost policy?
It’s also worth checking whether you’re getting a competitive rate at all. The gap between the best and worst rates in the market is often larger than a single rate rise, so comparing or asking your lender for a better deal may help more than the fixed-versus-variable decision itself. Independent guidance is on the government’s Moneysmart site. This is general information, not financial advice.
The Bottom Line
Fixing gives you certainty, variable gives you flexibility, and a split gives you some of each. With a rise widely expected, fixed rates often already reflect it, so fixing tends to buy certainty rather than a discount. Weigh the certainty against the lost flexibility and possible break costs, consider a split if you can’t decide, and compare rates generally, because the best-value move is often simply being on a sharper rate.
Epik Wire covers the property market in plain language for buyers, owners and borrowers. Subscribe to our newsletter to stay informed.
