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Fixed vs Variable Rate Calculator
Fixed vs Variable Rate Calculator
Lifetime Interest Saved By Fixing
$11,270.27
Fix vs Float Analysis
Locking in for 3 years at 5.79% — with the balance reverting to 6.39% afterwards — costs $613,462.04 in lifetime interest versus $624,732.32 on a straight variable loan at 6.39%. That makes the 3-year fixed term cheaper by $11,270.27, while also fixing your repayments at $2,930.58 against today's $3,124.26
Rates shown are inputs, not quotes. This model excludes break costs, offset balances, rate changes on the variable leg and the tax treatment of investment loans, and is educational rather than lending advice.
The Great Australian Lockdown: Fixed vs Variable
Fixed versus variable is the defining home loan decision in Australia, and unlike the US — where almost everyone locks in a 30-year rate — Australians mostly hold variable loans with the option to fix for one to five years at a time. When the RBA moved rates hard after 2020, millions of borrowers who had fixed at 1.9 to 2.5 per cent sailed through the cash-rate rises, while variable holders watched repayments jump by hundreds of dollars a month. That experience reset how Australians think about rate certainty. The trade-off is genuinely two-sided. Fixing locks your repayment at today's price for the fixed period and shields you from RBA tightening, but Australian fixed terms come with break costs that can run to tens of thousands of dollars if rates move far, no redraw on most lenders, and no ability to make extra repayments beyond an annual cap. Staying variable keeps full flexibility — unlimited extra repayments, full redraw and offset functionality — at the cost of rate volatility. This calculator models both paths honestly: the fixed leg locks in for your chosen period then reverts to a variable rate you nominate, while the variable leg runs at its quoted rate for the full term, so you can compare lifetime interest, cash flow and the value of certainty side by side.
Behind the Formula: Two Amortisation Paths Compared
Both legs use the standard Australian amortising formula: Repayment = P × r / (1 − (1 + r)^−n). The variable path is a single schedule at the quoted variable rate across the whole term. The fixed path is a two-stage model: during your fixed period you pay either principal-and-interest (calculated over the full term at the fixed rate, as most Australian lenders fix a rate but keep the original amortisation) or interest-only if you select the investor structure, and the balance at the end of the fixed period is then repriced for the remaining months at the revert rate you assume. The headline figure — Lifetime Interest Saved — subtracts the fixed path's total interest from the variable path's. Because fixing usually lasts only a few years, the result depends heavily on two numbers you control: how high the variable rate actually runs versus the fixed quote, and your assumed revert rate after the fixed period ends. If the variable rate exceeds the fixed quote by more than the rate gap over the fixed years, fixing wins on dollars; if not, the variable path wins and you have kept the optionality. Interest-only fixing lowers payments during the fixed period but defers principal reduction, which inflates the eventual repayments and total interest — a trade-off common for Australian investors managing negative gearing cash flow.
Expert Insights
Fix the Rate, Not the Whole Loan
Most Australian lenders let you split the loan — fixing a portion at a competitive rate while leaving the rest variable. The split gives you repayment certainty on the fixed slice while preserving redraw, offset and unlimited extra repayments on the variable slice. A common professional pattern is to fix the amount needed to keep repayments within budget through the expected RBA cycle, leaving the balance variable as a flexibility reserve.
Break Costs Are the Price of Certainty
Australian fixed-rate break costs are calculated from wholesale funding rates, and they escalate fast when market rates fall below your fixed rate. Selling, refinancing or switching to a lower rate mid-fix can cost thousands to tens of thousands of dollars. Before fixing, check the lender's break-cost formula and ask for an indicative break estimate — if you may sell or refinance within the fixed term, that potential penalty is part of the fixing price and often tilts the decision back to variable.
The Variable Premium Pays for Optionality
Fixed rates are often quoted 0.30 to 0.60 points below the variable rate, but that discount is the market's price for the optionality you surrender. If rates hold or fall, you overpaid; if they rise past the discount, you won. For most Australians the decision should hinge not on rate forecasting — which professionals get wrong constantly — but on whether you could absorb another 1 to 2 points on your repayment without stress. If not, some fixed component is cheap insurance.
Actionable Tips
- 1
Set the Revert Rate to Your Honest Expectation
The fixed path in this model reprices your balance at the revert rate when the fix ends. Use the variable rate you genuinely expect at that point — not today's rate — by checking the RBA's latest minutes and the Big Four's standard variable rate. An optimistic revert rate flatters the fixed leg; a pessimistic one flatters variable. Run the comparison under both to see how sensitive the verdict is.
- 2
Stress-Test the Variable Payment Plus 2 Points
APRA requires lenders to serviceability-test at your rate plus 3 percentage points. Do the same for yourself: can you afford the variable repayment in this calculator if rates rose another 2 points? If that payment breaks your budget, a fixed component of at least 50 per cent of the loan is worth the break-cost exposure. If you could absorb it, the flexibility of full variable is likely worth more than a small fixed-rate discount.
- 3
Ask for the Same-Day Fixed and Variable Quotes
The gap between a lender's fixed and variable quotes moves weekly with swap rates. Request both quotes on the same day — and across at least two lenders via your broker — before entering the inputs here. A fix quoted 0.40 points below variable is a stronger case to lock in than one quoted 0.15 points below, and the same-day comparison stops stale numbers distorting the decision.
Real-World Examples
Sarah Fixed Before the RBA Hike Cycle
Sarah, a nurse in Melbourne, fixed her $450,000 loan at 2.89 per cent for three years in early 2021 just as the cash rate was being flagged higher. When variable rates hit 6-plus per cent by 2023, her repayment stayed flat while neighbours' rose by $800 a month. The fixed leg in this calculator's scenario shows exactly why she won: the variable path paid tens of thousands more interest over her fixed window than her locked rate cost.
Leo Stayed Variable and Kept His Options
Leo, a tradie in Perth, kept his $550,000 loan fully variable despite fix offers, because he planned to sell and upgrade within three years. Fixing would have exposed him to break costs at sale. When a lower variable rate came along, he switched mid-term at no penalty, parked sale proceeds in an offset, and made unlimited extra repayments — every flexibility a fixed loan would have blocked.
The Kims Split the Difference
The Kims split their $650,000 loan — 60 per cent fixed for three years at 5.79 per cent, 40 per cent variable with a full offset. The fixed half gave budget certainty through the rate uncertainty that followed; the variable half let them salary-sacrifice bonuses into the offset and redraw for a car purchase without breaking the fix. When the fixed term ended, rates had settled, and they rolled the fixed portion back to variable at a lower standard rate.
Glossary of Terms
- Fixed Rate
- A home loan rate locked with the lender for a set period (commonly 1 to 5 years in Australia), with repayments frozen for that term.
- Variable Rate
- A rate that moves with the lender's pricing — typically tracking the RBA cash rate — with repayments changing each time the lender reprices.
- Break Cost
- The penalty charged for exiting an Australian fixed-rate loan early, calculated from the lender's wholesale funding losses.
Frequently Asked Questions
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Ivy Sinclair-Wren
Financial Chaos Analyst
Ivy Sinclair-Wren is a Financial Chaos Analyst covering investing, AI, wealth psychology, and the emotional consequences of opening finance apps during market crashes. Based in Melbourne, she specializes in demystifying the Australian tax code and helping users navigate the intersection of spreadsheet logic and human irrationality.