Fixed vs. Variable Home Loans: A First Home Buyer’s Guide to Choosing the Right Rate in 2025

For first home buyers wondering where to start, one of the biggest questions is whether to choose a fixed or variable home loan rate. Both options can help you buy your first home, but they work in very different ways.

Don’t worry if this feels overwhelming – mortgage brokers specialise in helping first home buyers compare options and find the right loan, completely free of charge.

What is Interest on a Home Loan?

Before we dive into fixed versus variable rates, let’s cover the basics: what exactly is interest, and why does it matter?

Interest is the cost of borrowing money. When a bank lends you money to buy a home, they charge you interest as a percentage of the loan amount. This is how lenders make money and cover the risk of lending to you.

How Home Loan Interest Works

Think of it this way: if you borrow $500,000 to buy a home at a 6% interest rate, you’re not just paying back $500,000 — you’re paying back the loan amount PLUS the interest charged over the life of the loan.

Here’s a simple example:

• Loan amount: $500,000
• Interest rate: 6% per year
• Loan term: 30 years
• Monthly repayment: approximately $3,000
• Total amount you’ll pay back: around $1,079,000

That means you’ll pay roughly $579,000 in interest over 30 years. That’s why even small differences in interest rates can save (or cost) you tens of thousands of dollars.

Why Interest Rates Change

Interest rates in Australia are influenced by the Reserve Bank of Australia (RBA), which sets the official cash rate. When the RBA changes this rate (usually to manage inflation and economic growth), banks typically adjust their home loan rates in response.

The RBA meets eight times a year, every six weeks, to review and potentially adjust the cash rate. These meetings take place over two days, with the decision announced on the second day at 2:30 pm (AEST/AEDT). Many first home buyers tune into these announcements to see if there’s an opportunity to save on their repayments or if they need to prepare for increases.

This is why some people choose variable rates (which move with the market) while others prefer fixed rates (which stay the same regardless of what the RBA does).

The Lower the Rate, The Less You Pay

Even a 0.5% difference in your interest rate can mean significant savings:

Example comparison on a $500,000 loan over 30 years:

• At 6.0%: $3,000/month = $1,079,000 total repaid
• At 5.5%: $2,839/month = $1,022,000 total repaid
• Difference: $57,000 saved over the life of the loan

This is why choosing the right loan type and getting a competitive rate matters so much for first home buyers.

Understanding Fixed vs. Variable Home Loan Rates

A fixed home loan rate locks in your interest rate for a set period (typically 1-5 years), which means your repayments stay the same each month.

A variable home loan rate moves with the market, so your repayments can go up or down depending on what happens with the economy and the Reserve Bank of Australia (RBA).

Let’s break down what each option means for your wallet and your peace of mind.

What is a Fixed Rate Home Loan?

A fixed rate home loan is exactly what it sounds like — your interest rate is locked in for a specific period of time. No matter what happens in the market, your repayments won’t change during that fixed term, usually ranging from one to five years or longer.

Why First Home Buyers Choose Fixed Rates

For many first home buyers, that predictability is a huge relief. It helps you plan your budget with confidence, knowing exactly what’s leaving your account each month. Once your fixed term ends, your loan will usually revert to a variable rate unless you decide to refix or negotiate a new rate.

Current fixed rates: If you’d like to see what current fixed rates look like, head over to Canstar’s fixed home loan comparison tool or use the First Home Owners Hub calculator to estimate your repayments and explore what might work best for you.

The Pros: Why First Home Buyers Love Fixed Rate Security

Fixed rate loans are popular with first home buyers because they remove a lot of uncertainty. Here’s why they work well:

1. Predictable Monthly Repayments

No surprises if interest rates rise. Your repayment amount stays consistent throughout your fixed period, making household budgeting straightforward.

2. Easier Financial Planning

Perfect for managing mortgage repayments alongside other first home costs like deposits, insurance, furniture, removalists, and ongoing maintenance — not to mention life in general like groceries, entertainment, Christmas shopping, and all those little expenses that add up. Moving in costs are one thing, but fixed rates help you plan for normal mortgage life too.

3. Peace of Mind During Settling In

Your repayments won’t spike unexpectedly while you’re adjusting to homeownership and all the expenses that come with it.

4. Protection from Rate Increases

Even if the RBA raises the cash rate and lenders increase variable rates, your repayments stay stable during your fixed period.

The Cons: What First Home Buyers Should Know About Fixed Rates

While fixed rates offer security, they come with some trade-offs:

1. Limited Flexibility

Most fixed rate loans have restrictions on:

• Making extra repayments (often capped at $10,000-$30,000 per year)
• Accessing redraw facilities
• Switching to a different loan product

2. Break Costs Can Be Expensive

If you need to refinance, sell your property, or exit the loan early during your fixed period, you may face significant break fees (sometimes thousands of dollars).

3. You Might Miss Out on Rate Drops

If the RBA cuts rates and variable rates fall, you’ll still be locked into your higher fixed rate until your term ends.

4. Less Features

Fixed rate loans typically offer fewer features than variable loans, such as offset accounts or flexible repayment options.

What is a Variable Rate Home Loan?

A variable rate home loan has an interest rate that fluctuates based on market conditions and decisions by the Reserve Bank of Australia. When the RBA changes the official cash rate, lenders typically pass these changes on to variable rate borrowers.

How Variable Rates Work for First Home Buyers

Your repayments can increase or decrease throughout your loan term. This means more flexibility but also more uncertainty compared to fixed rates.

The Pros: Why Variable Rates Offer Flexibility

Variable rate loans come with advantages that appeal to many first home buyers:

1. Benefit from Rate Decreases

If the RBA lowers rates, your repayments could drop, potentially saving you thousands over the life of your loan.

2. More Flexibility with Repayments

Most variable loans let you:

• Make unlimited extra repayments
• Pay off your loan faster without penalty
• Build up savings in your loan account

3. Access to Offset Accounts

Many variable loans offer offset accounts, where your savings can reduce the interest charged on your home loan.

4. Redraw Facility Available

Access extra repayments you’ve made if you need funds for renovations, emergencies, or other major expenses.

5. No Break Costs

Unlike fixed loans, you can typically refinance or exit without expensive break fees.

The Cons: Variable Rate Risks for First Home Buyers

The flexibility comes with some uncertainty:

1. Unpredictable Repayments

Your monthly repayment amount can change whenever lenders adjust rates, making budgeting more challenging.

2. Exposure to Rate Rises

If interest rates increase significantly, your repayments could jump by hundreds of dollars per month.

3. Requires Active Monitoring

You’ll need to keep an eye on rate movements and potentially shop around to ensure you’re getting competitive rates.

Split Home Loans: The Best of Both Worlds?

Can’t decide between fixed and variable? Many first home buyers choose a split loan — dividing their home loan between fixed and variable portions (for example, 50% fixed, 50% variable).

Benefits of Split Loans:

• Partial protection from rate rises
• Some flexibility for extra repayments on the variable portion
• Access to features like offset accounts on part of your loan
• Reduced risk if you need to refinance (break costs only apply to the fixed portion)

How to Choose: Fixed vs. Variable for First Home Buyers

Consider these questions when deciding which loan type suits you:

Choose a fixed rate if you:

• Value budget certainty and predictable repayments
• Are nervous about potential rate increases
• Have a tight budget with little room for fluctuations
• Don’t plan to make large extra repayments
• Want financial stability while settling into homeownership

Choose a variable rate if you:

• Can handle repayment fluctuations in your budget
• Want flexibility to make extra repayments without restrictions
• Believe interest rates may decrease
• Want access to features like offset accounts
• May need to refinance or sell within a few years

Consider a split loan if you:

• Want some certainty but also some flexibility
• Are unsure which way rates will move
• Want to hedge your bets with both options

Current Home Loan Rates for First Home Buyers (November 2025)

Interest rates in Australia have remained relatively stable in recent months. To find the most current fixed and variable rates available to first home buyers:

• Compare rates using online comparison tools like Canstar, RateCity or Finder
• Use the First Home Owners Hub calculator to estimate repayments
• Speak with a mortgage broker who can access rates from multiple lenders
• Check for first home buyer specific discounts or incentives

Remember: the lowest rate isn’t always the best option. Consider fees, features, and flexibility alongside the interest rate.

First Home Buyer Tips: Beyond Fixed vs. Variable

1. Get Pre-Approval First

Know your borrowing capacity before you start house hunting. Pre-approval gives you confidence at auctions and when making offers.

2. Factor in All Costs

Beyond your mortgage repayment, budget for:

• Council rates
• Strata fees (for apartments)
• Home and contents insurance
• Maintenance and repairs
• Utilities
• Everyday life expenses like groceries, food, nights at the pub, and those cheeky subscriptions (Netflix, YouTube Premium, Spotify — they add up!)

3. Consider Professional Advice

A mortgage broker can help first home buyers navigate loan options at no cost to you (they’re paid by lenders). They can access deals you won’t find online.

4. Understand Your Government Support Options

First home buyers may be eligible for:

• First Home Guarantee (with as little as 5% deposit)
• First Home Owner Grant (varies by state)
• Stamp duty concessions or exemptions

5. Read the Fine Print

Understand:

• Comparison rates (the true cost including fees)
• Application and ongoing fees
• Early exit or break costs
• Conditions around extra repayments

Making Your First Home Loan Decision

There’s no one-size-fits-all answer to fixed vs. variable for first home buyers. Your choice depends on your financial situation, risk tolerance, and life plans.

The key is understanding how each option works and being honest about:

• Your budget flexibility
• Your comfort with uncertainty
• Your short and long-term plans
• Whether you’re likely to make extra repayments

Many first home buyers start with a fixed rate for the security, then switch to variable once they’re more comfortable with homeownership and have built up some equity.

Next Steps for First Home Buyers

Ready to move forward with your home loan decision? Here’s what to do:

1. Calculate your budget using online calculators to see what you can comfortably afford
2. Get pre-approval to understand your borrowing capacity
3. Compare loan options from multiple lenders (banks, credit unions, and online lenders)
4. Speak with a mortgage broker for personalised advice and access to exclusive rates
5. Review government incentives you may be eligible for as a first home buyer
6. Read loan contracts carefully before signing anything

Remember: your first home loan doesn’t have to be your forever loan. As your circumstances change and you build equity, you can refinance to a loan that better suits your needs.

Final Thoughts: Fixed or Variable for Your First Home?

Choosing between fixed and variable rates is one of the most important financial decisions you’ll make as a first home buyer. Take your time, do your research, and don’t be afraid to ask questions.

Whether you choose the security of fixed rates, the flexibility of variable rates, or a split loan combining both, the most important thing is finding a home loan that fits your budget and helps you achieve your homeownership goals.

Disclaimer: This article provides general information only and does not constitute financial advice. Interest rates, loan products, and government incentives change regularly. Always consult with a qualified mortgage broker or financial advisor before making home loan decisions.