The 2025 context changes the answer
In 2022, when the RBA was raising rates aggressively, locking in a fixed rate made intuitive sense. In 2025, the picture is different: the RBA is in a cutting cycle, variable rates are falling, and fixed rates from lenders are priced to reflect expected future cuts — meaning you often pay a premium to fix now relative to where variable rates are heading.
This does not mean fixing is always wrong. It means the decision requires more care than it did when rates were moving in one direction only.
Fixed rate
- Certainty — repayments don't change
- Protection if rates rise unexpectedly
- Easier to budget around
- Can miss out if rates keep falling
- Break costs if you sell or switch
- Limited or no extra repayments
- No offset account (most lenders)
Variable rate
- Benefits from RBA rate cuts
- Full offset account available
- Unlimited extra repayments
- No break costs to refinance or sell
- Repayments rise if rates increase
- Less certainty for budgeting
- Requires active rate monitoring
The current rate comparison
As of June 2025, the rate differential between fixed and variable products looks like this across our 30+ lender panel:
| Product | Rate from | Notes |
|---|---|---|
| Variable (owner-occupier P&I) | 5.69% p.a. | Can fall further with RBA cuts |
| Fixed 1-year | 5.59% p.a. | Small premium; locks in near-term certainty |
| Fixed 2-year | 5.74% p.a. | Slightly above current variable |
| Fixed 3-year | 5.89% p.a. | Priced above current variable |
| Fixed 5-year | 6.09% p.a. | Lenders pricing in rate recovery |
Indicative rates as at June 2025. Actual rates depend on LVR, loan size, and lender. Contact GoRefinance for current pricing.
Notice the pattern: fixed rates for 2 years and beyond are currently higher than the best available variable rates. This means you are paying a premium to fix — and that premium is essentially the lender's pricing of the risk that rates fall further than the fixed rate implies.
The case for variable in 2025
The RBA has been cutting rates, and most economic forecasts expect further cuts through 2025. Each cut is passed on (at least partially) to variable rate borrowers. By choosing variable, you:
- Capture further rate reductions as they occur
- Retain the ability to make unlimited extra repayments — critical for borrowers who want to reduce principal fast
- Keep full offset account functionality — every dollar in offset reduces your interest daily
- Retain the ability to refinance again without break costs if a better deal appears
The offset account advantage: A $50,000 offset balance on a 5.69% variable loan saves approximately $237/month in interest compared to having no offset. This benefit disappears entirely with most fixed rate products. For borrowers with significant savings, this alone can make variable the financially superior choice.
The case for fixing in 2025
Fixing makes sense when:
- Your budget is tight — certainty over repayments is worth the rate premium if a rate rise would cause genuine financial stress
- You plan to sell within 2 years — a 1-year fixed rate at 5.59% can provide certainty over your holding period
- You believe the economic outlook is worse than priced — if you think the RBA will reverse course and raise rates, fixing provides protection
- You are building or renovating — fixed rates during a construction period can simplify financial planning
The split loan option
Many borrowers in uncertain rate environments choose a split loan — dividing the mortgage between a fixed and variable portion. A common approach is 60% fixed / 40% variable, giving:
- Certainty on the fixed portion's repayments
- Rate cut benefit and offset access on the variable portion
- Reduced break cost exposure (only the fixed portion attracts break costs)
Split loans are available from most major lenders and many non-bank lenders. The exact split ratio depends on your priorities — your broker can model the financial outcomes of different splits based on rate scenarios.
What most brokers are recommending in 2025
The majority of experienced Australian mortgage brokers in mid-2025 are recommending one of three approaches for refinancing clients:
- Full variable — for borrowers comfortable with rate movement who want maximum flexibility and offset functionality
- 1-year fixed then review — for borrowers who want 12 months of certainty while the rate environment clarifies, with a plan to revisit at expiry
- 60/40 split (fixed/variable) — for borrowers who want a balance of certainty and flexibility
Very few brokers are currently recommending 3-year or 5-year fixed rates, given the premium versus current variable rates and the risk of missing continued RBA cuts.
For most Australian borrowers in mid-2025: variable or 1-year fixed
The rate-cutting environment, the variable/fixed spread, and the offset account value all favour variable rates for borrowers who can tolerate repayment variation. For those needing certainty, 1-year fixed provides it at a modest premium. Longer fixed terms are priced above current variable rates — you are paying for insurance against a rate scenario most forecasters consider unlikely in the near term.
The question nobody asks: what is your revert rate?
When your fixed term ends, your loan automatically rolls onto the lender's revert rate — typically their standard variable rate, which is consistently higher than their new-customer variable rates. The revert rate trap is one of the most common ways Australian homeowners overpay without realising it.
If you fix now, set a calendar reminder 90 days before your term ends to begin the refinancing or negotiation process. Never roll passively onto the revert rate.