Everything You Need to Know: Fixed vs Variable Loans

Fixed Rate Loans Lock Your Repayment for a Set Period

A fixed rate loan holds your interest rate and minimum repayment at the same level for a chosen term, typically one to five years. Variable rate loans move with the lender's rate decisions, which means your repayment can rise or fall throughout the life of the loan. A split loan divides your borrowing between fixed and variable portions, letting you hold some certainty while keeping access to features like offset accounts on the variable side.

Consider a Navy member posted to HMAS Harman in Forrest who buys an apartment in nearby Griffith with a five percent deposit using the Australian Government 5% Deposit Scheme. Fixing the rate for three years gives predictable repayments during that posting, even if the Reserve Bank moves rates twice in that window. The same buyer choosing a variable loan would see repayments shift with each rate change, which could mean an extra $200 per month if rates climb, or $150 less if they fall.

The decision depends on how you value certainty against flexibility. If your budget has little room to absorb a rate rise, fixing offers protection. If you expect to make lump sum repayments from allowances or prefer access to an offset account, variable or split structures suit better.

How Variable Loans Give You Access to Offset and Redraw

Variable loans typically allow offset accounts and redraw facilities. An offset account is a transaction account linked to your loan. The balance in that account reduces the loan balance used to calculate daily interest, which lowers the amount you pay each month without changing the contracted repayment. If you keep $15,000 in offset and owe $450,000, you pay interest on $435,000.

Redraw lets you access extra repayments you have made above the minimum. If you pay an additional $5,000 over 12 months and need that cash for a posting relocation, you can withdraw it. Fixed rate loans rarely include offset or redraw, and when they do, the redraw is often capped or subject to fees.

For ADF members with irregular income from allowances or deployment payments, keeping those funds in offset preserves liquidity while cutting interest costs. Fixing the entire loan removes that option, which is why many members choose a split instead.

Split Loans Balance Certainty With Feature Access

A split loan divides your borrowing into two portions. One part is fixed, the other variable. You might fix 60 percent at a set rate for three years and leave 40 percent variable with full offset access. This structure protects most of your repayment from rate rises while keeping the flexibility to park extra cash in offset or make lump sum payments without penalty.

In our experience, ADF members who split their loans tend to fix the portion that matches their essential living costs and leave the rest variable to absorb allowances and bonus payments. A member borrowing $500,000 might fix $300,000 and leave $200,000 variable. If rates rise, the fixed portion stays unchanged. If the member receives a $10,000 retention bonus, that money can sit in the offset account linked to the variable portion, reducing interest on $200,000 immediately.

Split ratios are not locked at 50/50. You can choose any split that suits your circumstances, and some lenders let you adjust the ratio when the fixed term ends. The downside is managing two loan accounts, each with its own terms, and potentially two sets of fees if the lender charges separate account-keeping costs.

Fixed Loans Limit Your Ability to Make Extra Repayments

Most fixed rate products cap extra repayments at $10,000 to $30,000 per year. Beyond that limit, break costs apply. Break costs are charged when you repay more than the allowed amount, refinance, or sell the property before the fixed term ends. The cost reflects the loss the lender incurs because it locked in funding at the rate you fixed, and now that funding is no longer needed.

Break costs can run into thousands of dollars depending on how far rates have moved since you fixed. If you fixed at 5.5 percent and current rates are 4.0 percent, the lender expected to earn 5.5 percent for the full term. Ending that contract early means the lender must reinvest your repayment at a lower rate, and the break cost covers that difference.

For members who receive periodic lump sums from deployment or tax refunds, a variable or split loan avoids this penalty. If you fix and then need to sell due to a sudden posting change, the break cost is payable at settlement and deducted from your proceeds.

The ACT Offers Full Stamp Duty Exemption for First Home Buyers in Forrest

From 1 July 2026, eligible buyers in the ACT are fully exempt from conveyance duty regardless of the value of the property purchased and regardless of household income. This applies to first home buyers in Forrest who meet the residence and age requirements. There is no property price cap, which is a significant change from prior years.

Forrest sits within the parliamentary triangle and attracts buyers working at Russell Offices or posted to HMAS Harman. Median apartment prices in the inner south corridor have remained above $600,000, and the removal of the property value threshold means buyers looking at higher-priced stock still qualify for full duty relief. No first home buyer grants apply in the ACT, as the grant scheme closed in 2019, but the duty exemption delivers a direct saving that ranges from several thousand dollars on apartments to tens of thousands on houses.

You must occupy the property as your principal place of residence for at least 12 months starting within 12 months of settlement. If you are posted out of Canberra before that period ends, you may not meet the eligibility criteria, so confirming your posting timeline before exchanging contracts is essential.

Interest Rate Discounts Often Favour Variable Loans

Lenders frequently apply larger rate discounts to variable products than to fixed products. A lender might offer a 0.80 percent discount on a variable rate and only 0.30 percent on a fixed rate. This reflects the higher risk the lender takes by locking in a rate for multiple years.

For ADF members, some lenders provide additional discounts through defence-specific packages, and those discounts usually apply to the variable rate only. If you fix your rate, you may lose access to that discount for the fixed portion, which can make fixing more expensive than it appears when comparing headline rates.

When comparing loan options, ask for the comparison rate on both fixed and variable products and confirm whether your defence discount applies to the fixed rate. The comparison rate includes fees and gives a clearer picture of the total cost over the life of the loan.

Loan Portability Varies Between Fixed and Variable Products

Portability allows you to transfer your loan to a new property without discharging and reapplying. This can save time and avoid break costs if you are moving due to a posting. Most variable loans are portable, meaning you sell one property, buy another, and the loan moves across without penalty.

Fixed rate loans are sometimes portable, but the terms are stricter. If the new property is more expensive, you may need to take out additional borrowing, and that new portion will be at the current rate, not the rate you originally fixed. If the new property is cheaper and you repay part of the fixed loan, break costs apply.

For members expecting to move within two to three years, a variable or split loan with portability offers more certainty than fixing the full amount. Check portability terms with your lender before choosing a loan structure, particularly if you are buying in Forrest and expect a posting to Townsville or Edinburgh within the fixed term.

Refinancing a Fixed Loan Before the Term Ends Attracts Break Costs

If you refinance while your fixed rate is still active, the existing lender will charge break costs. Those costs are calculated based on the difference between your fixed rate and the current wholesale rate the lender can access. The calculation is complex and varies by lender, but the result is a lump sum deducted at discharge.

Members who fix for five years and then see variable rates drop by one percent or more within two years sometimes consider refinancing to capture the lower rate. The refinance might deliver lower repayments, but the break cost can exceed the first year of savings, making the switch unviable until closer to the end of the fixed term.

If you are considering home loan refinancing, request a break cost estimate from your current lender and compare it to the interest saving from the new loan. Some lenders offer rate matching or retention discounts if you are thinking of refinancing, which can deliver a similar outcome without the cost.

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