Home loan interest rates – fixed or floating?

3 MIN READ October 26, 2021
Whether you currently have a mortgage or you’re looking at getting one 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…

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
  • With interest rates at an all-time low currently, you could save a lot of money if you lock them in for a fixed term
  • You may be able to negotiate an even lower rate on a fixed term loan because lenders want your business


  • 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
  • If you break the term or end up selling your property, you may be charged a fee

Floating interest rates

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


  • If you have an inconsistent income, this might benefit you as you are not locked in to a specific monthly payment
  • 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 so you’ll likely pay more interest overall
  • It can be difficult to plan and budget with a floating rate as they can often fluctuate
  • 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 fixed and some parts 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 available. Our service is free of charge so what are you waiting for?



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