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Fixed vs variable: what types of home loans are there?

When it comes to buying a property, the type of home loan you take can make a big difference, so it's important to understand your options.

Between a fixed and a variable home loan, the best choice will depend on your current circumstances, future plans, and whether you're buying a property as the home you'll live in (referred to as "owner occupier"), or as an investment. You may want a fixed rate, have the variable option, or even a bit of both.

Here's a quick guide to help you understand the difference between fixed and variable loans so you can find one that suits you. We've also included some other useful information about the importance of pre-approval.

What is a fixed rate?

A fixed rate home loan means your rate is just that – fixed. You will know exactly how much each repayment will be for the duration of your fixed term. Many people find this gives them a sense of security. Some lenders may allow you to fix anywhere from one to five years.

However, it is important to know that if interest rates drop this won't be applied to your home loan. Or, if you wish to break your fixed term contract before the agreed term is over there may be additional fees and charges involved.

With a fixed rate home loan, you may still have the option to repay more than the minimum repayment per year (up until a capped amount) without incurring any additional fees from your lender. This is a great option if you are trying to get ahead on your repayments.

What is a variable rate?

A variable home loan rate is dependent on several factors. The rate you have today may not be the rate you have in a few months or even a few years' time, but you won't be locked in. Your rate can increase or decrease based on certain economic factors out of your control.

If the cash rate does go down your interest rate might also drop, which means you'd pay less interest on your mortgage. However, if the rate goes up your interest rate might also increase, meaning you could have higher repayments.

What is Interest Only?

An "Interest Only" loan will mean you are only paying the "interest" component that is being charged to loan, not the actual loan itself, which is referred to as the "principal". So if you have borrowed a loan amount of, for example: $400,000, and decide to pay interest only for 2 years, at the end of the 2 years the balance will still be $400,000 which is something to consider.

Split loans

You may decide you don't want to commit to a fixed, variable or interest only rate but have a bit of each. You can speak to your lender about flexible options of fixing part of your loan, keeping the other portion variable or keeping a portion as interest only. Always speak to your lender and think about what will work best for you.

What is best for you?

Do some research, use tools such as our online calculators, take a look at lenders' options and speak to trusted friends, family or even colleagues about their experiences. If you would like advice as to which home loan may be suitable for you, make an appointment with a lender to see a home loan specialist.

They can help review your financial situation and will provide suggestions and recommendations as to which home loan product is most suitable for you based on your needs and the information you provide.

Get pre-approved

Once you've done your research on what type of home loan you feel is right, speak to your lender to apply for "pre-approval". This will give you a better idea of your borrowing power, the type of loan that may be suited to you, and help you find a property within your budget.

Your lender will assess you as a candidate and your needs. With most lenders your pre-approval is valid for around 3 months.

While pre-approval isn't a guarantee, it can be the first step in obtaining your home loan. When you do find the right place to purchase, it can help speed up the process as your home loan application will be based on the information you have already provided such as:

  • proof of ID
  • proof of income and employment
  • tax information
  • 3 months of bank/credit card statements
  • any other assets you own, and their value
  • any debts you may have


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Credit provided by HSBC Bank Australia Limited ABN 48 006 434 162. Australia Credit Licence 232595. Terms, condition, fees, charges and HSBC lending criteria apply. This article does not take into account your personal, financial situation. Please consider a relevant Product Disclosure Statement available at or by calling 1300 308 008 before making a decision about this product.