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Home loan interest rates – fixed or floating?

Whether you currently have a mortgage or you’re looking at getting one sorted pretty soon, it’s important to know what kind of structure is best for you. When it comes to interest rates, there are a couple of different types, each with their own pros and cons and degree of flexibility. So which one is best?

Fixed interest rates

With a fixed rate home loan, the interest rate you pay on the loan is fixed for a period of time. This can be anywhere from six months to five years, and at the end of the time period you’ve chosen, you’ll need to fix it for a set period again.


  • With a fixed interest loan, you know exactly how much you’ll be paying each time you make a repayment during the fixed rate term
  • Mortgage providers often compete with each other using fixed rate specials
  • You can lock in a lower rate for the entire time period, even if the rate increases over that time


  • If you’re wanting to make extra payments to your mortgage to pay it off faster, this type of loan is often very limiting, and there’s usually a fee involved for making extra payments
  • As much as interest rates can increase, they can also decrease, and if your fixed rate is higher than the current market, you won’t be able to make the most of the lower rate

Floating interest rates

A floating rate loan doesn’t require you to fix an interest rate in place. The interest rate you will pay will depend on what the Official Cash Rate (OCR) is currently in the market. Your repayments can go down, but they can also go up.


  • You have more flexibility with making changes to the loan term
  • You can make higher repayments as you like to pay your mortgage off faster without any early repayment costs
  • If the OCR drops, your payments will be lower in line with the current rate


  • Floating rates are usually higher than fixed rates
  • If the OCR rises, your repayments also go up which can be difficult to manage depending on your budget

A mix of fixed and floating interest rates

There are benefits and disadvantages to both types of interest rate loans, but you can make the most of each by creating a loan that has some parts in a fixed rate, and some in a floating. This way you can make extra payments into the floating portion and lock in a great rate for a period of time on the fixed portion.

The market interest rates will likely have changed since you first set up your mortgage, so when you re-fix, it may mean that you end up paying more. That’s why it’s important to know that you can use another mortgage provider if you choose to once you’ve ended your term period with your current provider.

Thinking about changing the structure of your mortgage?

Get in touch with one of our expert mortgage advisers today – we can recommend the best provider for your situation and get you the best interest rates. Our service is free of charge so what are you waiting for?!