Fixed, variable and offset home loans: how to compare them

A home loan combines a repayment schedule, a rate and conditions on access and changes. Compare those parts together before treating a lower advertised rate as a cheaper loan.

Fixed period

Rate certainty lasts for the agreed fixed period; check the terms that follow

Comparison rate

Combines the interest rate and most fees, rather than every possible costASIC MoneySmart: choosing a home loan

Offset and redraw

An offset is a separate linked account; redraw concerns extra repayments already made to the loanASIC MoneySmart: mortgage offset accounts

Refinancing

Compare switching costs and the remaining loan term as well as the new rateASIC MoneySmart: switching home loans

Know when the rate can change

With a fixed rate, the agreed interest rate stays unchanged during the fixed period. That gives predictability for that part of the loan, but does not fix the rate for its entire life. Check the end date and what happens next: the loan will usually revert to a variable rate unless another arrangement is made.

A variable rate can rise or fall at the lender's discretion. The RBA cash rate is an influence, not a promise that every lender will move by the same amount. A split loan has fixed and variable portions, each with its own conditions. Check fees, extra-repayment limits and features on both portions. ASIC MoneySmart's fixed-versus-variable explainer (opens in a new tab) describes these differences.

Make the cost comparison consistent

Use the same borrowing amount, repayment method and loan term when reviewing offers. Principal-and-interest repayments reduce the debt as well as paying interest. During an interest-only period, scheduled repayments do not reduce the principal. A lower initial repayment therefore does not by itself establish a lower overall cost.

MoneySmart's Choosing a home loan page (opens in a new tab) explains comparison rates and Key Fact Sheets. A comparison rate combines interest and most fees; it is not an all-cost guarantee. Keep establishment charges, ongoing fees and relevant conditions visible in your notes. Compare the quoted repayment schedule with the assumptions in any calculator you use.

Distinguish offset money from extra repayments

An offset is a transaction account linked to a home loan. Its balance reduces the loan amount used to calculate interest. Redraw works differently: it concerns extra repayments made into the loan, and access depends on the loan conditions. Neither name alone tells you every fee or access rule.

An offset feature may come with a higher loan rate or account fees. Consider the balance likely to remain in it, rather than assuming the feature always pays for itself. Confirm that the account is correctly linked. These mechanics and checks are described in MoneySmart's Mortgage offset accounts page (opens in a new tab); product-specific terms still need checking with the lender.

Check the cost of changing course

Before refinancing, ask for the costs of leaving the existing loan and establishing the replacement. Depending on the arrangement, these can include fixed-rate break costs, discharge and application fees, and lenders mortgage insurance. Obtain the figures for the actual loan; a generic repayment estimate cannot supply them.

Compare the proposed term with the years remaining on the current loan. Extending it can lower scheduled repayments while increasing total interest. MoneySmart's Switching home loans page (opens in a new tab) explains this trade-off and the need to compare benefits with switching costs.

Keep an offer separate from a scenario

Record the date, lender terms and assumptions beside each comparison. A repayment scenario does not predict future rates, establish eligibility or recommend a lender. Recheck the offer before acting, especially if the fixed period, property plans or household budget has changed.

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