Should You Fix Your Home Loan in 2025?

Australian homeowners are facing plenty of uncertainty around interest rates, so deciding whether to fix your home loan this year is a big financial decision. The past few years have seen massive fluctuations in mortgage rates, leaving many borrowers wondering if locking in a fixed rate loan is the best way to get stability and predictability in their repayments. Others, however, might be tempted to stick with a variable rate in case interest rates continue to fall.

Choosing between fixed and variable rate home loans can be a headache. After all, both options have their own set of pros and cons. While fixed rates give you a level of certainty, they are highly inflexible. Variable rates can give you savings when interest rates drop but can leave you exposed if your repayments increase. Here’s how to make the right decision for your situation.

What is a Fixed Rate Home Loan?

A fixed rate home loan is a mortgage that locks in your interest rate for a set period, usually anywhere from one to five years. During this fixed period, your repayments remain unchanged, regardless of any fluctuations in the broader interest rate environment. Fixed rate loans give borrowers a certain amount of financial security as you can organise your budget without worrying about any sudden repayment increases.

For homeowners who prize stability above all else, fixing a home loan can be really appealing. You won’t need to worry about rising interest rates during the fixed term, as your repayments will stay the same. The result? Better peace of mind, especially in a volatile economic environment where rate hikes might still be on the horizon.

But fixed rate home loans do have their limitations. Many lenders restrict you from making any additional repayments, meaning you won’t be able to pay down your mortgage faster – unless you want to be stung with expensive penalties. Also, if you decide to refinance, sell your property or switch your existing home loan to a variable rate before the fixed rate period ends, you could have to pay substantial break fees.

What is a Variable Rate Home Loan?

In contrast, a variable home loan interest rate fluctuates according to the market and decisions made by the Reserve Bank of Australia (RBA). If the cash rate goes up, lenders increase their variable mortgage rates (i.e. higher repayments for borrowers). If the cash rate drops, homeowners with variable mortgages get to enjoy lower repayments.

Flexibility is the biggest drawcard for variable home loan rates. As a borrower, you can make extra repayments without being penalised, which will reduce the total interest paid overtime. Many variable loans also come with offset accounts and redraw facilities, which is something most fixed rate loans lack.

Bear in mind, however, that the inherent unpredictability of variable rates means homeowners will likely face unexpected increases in their mortgage repayments at some point, which can put financial strain on your household budget. This makes it a riskier option for borrowers who need to rely on consistent repayments and want financial security.

Are Interest Rates Rising?

Interest rates have been on a rollercoaster since 2022, when the RBA began aggressively increasing the cash rate to combat rising inflation. Hike after hike caught many borrowers off-guard, especially the people who were coming off ultra-low fixed rates from 2020–2021.

Heading into the rest of 2025, many economists remain divided on the future of interest rates beyond the initial drop in February. Some predict that the RBA will continue to cut rates later in the year, as inflation steadies, and economic growth slows. But others warn that further rate hikes could still be necessary if inflation remains a persistent issue, or if geopolitical factors start to disrupt our local economy.

Such uncertainty creates a difficult decision for you. Fixing your rate could protect you from further increases, but if rates drop then you’ll end up paying more than necessary. Staying on a variable rate means you risk higher repayments, but you might also benefit if rates go down.

Advantages and Disadvantages of Fixing Home Loan

Pros:

• Protected against rate hikes: Your rate remains unchanged, which shields you from sudden increases.
• Predictable repayments: Makes budgeting easier and finances less stressful.
• Security in uncertain times: In a volatile economy like right now, a fixed loan can give you peace of mind.

Cons:

• No benefit from rate cuts: If rates drop, you won’t enjoy the savings.
• Break fees apply: If you refinance or sell your home before the fixed term ends, you will be stung with high exit costs.
• Less flexibility: Many fixed loans don’t allow extra repayments or redraw options.

Is 2025 a Good Time to Fix Your Home Loan?

If you prefer stability and predictability, fixing your mortgage could give you some much-needed financial security. If rates go up, you’ll be protected from higher repayments, which will in turn make budgeting easier.

On the other hand, if rates continue to fall this year, homeowners locked into a fixed loan will miss out on potential big savings. This is a major risk to consider, as interest rates are widely expected to keep declining later this year and potentially into early 2026.

If you’re unsure, a split home loan – which means part of the mortgage is fixed while the remainder stays variable – can be a compromise.

Switching to a Fixed Rate Home Loan

If you’re currently on a variable rate and want to lock in a fixed rate, you will probably need to refinance your home loan. That means applying for a new mortgage, which can come with new costs like discharge fees, valuation fees, application fees and more.

If you’re switching from an existing fixed loan before the term expires, remember that break fees can apply, and they are based on how much longer you have on your fixed term and the current market interest rates.

In short, if you’re currently on a variable loan and thinking about fixing your rate, you have the option to refinance. But be aware that the process will usually involve:

• Discharge fees to exit your current loan.
• Valuation fees for getting your property accurately valued before refinancing.
• Break fees if you’re switching from another fixed loan.

What Does it Cost to Refinance a Home Loan?

It could be as small as a couple of hundred dollars, or as high as several thousands of dollars – especially if there are break fees involved. Make sure you are clear with your bank or talk to our team at MyChoice Home Loans to better understand the costs of refinancing.

Managing Your Fixed Rate Home Loan

At the end of the fixed rate period, your home loan will automatically convert to a variable rate home loan with principal and interest repayments. At this stage, your repayment amount might change from what you were paying during the fixed rate period.

Ultimately, you'll have a few options to consider, such as refinancing or switching to a different loan product. Depending on the loan and your bank, you might also be able to make extra repayments during these 'in between' period to pay off your home loan faster.

What is a Fixed Rate Cliff?

A ‘fixed rate cliff’ is a term for the financial shock that homeowners experience when their low fixed interest rate expires, and their mortgage reverts to a much higher variable rate. Borrowers who locked in ultra-low interest rates in 2020 and 2021 were hit by this situation in 2023 and 2024, as their fixed terms ended, and they were stung by much higher repayments.

Making an Informed Decision

Here are some questions to ask yourself before making a firm decision:

• What are my financial goals? Do you need certainty in your repayments, or are you comfortable with market fluctuations?
• How do the interest rate forecasts look? Are rates expected to rise further, or will they decline later in the year?
• Am I comfortable with this level of risk? Can you handle repayment increases if rates go up, or do you prefer financial security?

MyChoice Home Loans

If you're dreaming of building with Brighton Homes, we work exclusively alongside our expert team at MyChoice Home Loans, removing the stress of finding your own finance. We make securing the funds for your dream home, easy, enjoyable, and uncomplicated.

Calling on their relationships with some of Australia's leading lenders, MyChoice Home Loans can currently work to secure you a 3 Year Fixed Rate loan as low as 5.39%* - comparison rate of 6.12%*. A lower interest rate allows for greater borrowing capacity which will help you get into your dream home sooner and finally let life in with Brighton Homes.

If certainty and stability are your top priorities, fixing your home loan could be the best option. But if you want flexibility and the potential to benefit from lower rates, keeping a variable loan or choosing a split loan may be a smarter move for your home loan repayments.

There’s no one-size-fits-all answer to whether you should fix your home loan in 2025. With interest rates in flux and economic uncertainty all around us, weighing the risks and benefits is what you should focus on before making a decision.

If you’re still uncertain, speak to our team at MyChoice Home Loans, a mortgage broker or financial advisor to figure out your options and find the best home loan strategy for your financial situation.

*IMPORTANT NOTICE: + Finance to approved applicants only. Interest rates are correct as at 15/04/2025 but are subject to change. Loan reverts to a Standard Loan Interest Rate once fixed rate period ceases. Rates based on up to 80% LVR, owner-occupied property, with Principal & Interest repayments commencing on the approved loan amount one month after loan settlement. *6.12% per annum comparison rate is based on a variable rate secured loan of $150,000 over a 25 year term. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. For example, costs such as redraw fees, lenders mortgage insurance, early repayment fees and cost savings such as fee waivers are not included in the comparison rate but may influence the cost of the loan. Credit criteria, fees, charges and terms and conditions apply. MyChoice Home Loans Pty Limited ACN 610 250 578 is an authorised Credit Representative (Number 485273) of Mortgageport Management Pty Ltd ACN 082 753 679 Australian Credit Licence 386360.