Home Loans: Fixed, variable or split?

As you begin your journey towards buying a property, you may find that raising capital is an important part of making your first purchase. Many Australians rely on mortgages to purchase their first property.

So, what types of home loans are available to you and best suit your needs? Should you go with a fixed, variable, or split interest rate loan?

Variable and fixed-interest loans

Over a period of time, the variable interest rates offered by a lender will fluctuate depending on a variety of economic factors. Sometimes they will drop, resulting in smaller repayments, but they can also rise.

This is the key difference between variable and fixed interest loans, and is likely to be a factor you’ll consider if you’re purchasing a property.  

On the other hand, fixed-interest loans allow you to know exactly how much your repayments are going to be each month for a set number of years, regardless of what is happening in the economy. This means you are protected when interest rates rise, but the flip side of this is that you will not benefit if they fall. Once the fixed rate period ends, the loan usually converts to a variable rate and is subject to fluctuations as explained above.

Another available option is the split loan. This allows you to put some of your loan in a variable interest arrangement, and some on a fixed interest basis. A split rate loan could provide you more certainty in relation to repayments, but also offer some flexibility in the event the market changes.

Interest-only loans

Interest-only loans are becoming a ubiquitous type of loan among property investors, with more than half of new investment loan approvals over the last few years being of this type1. These loan arrangements usually require you to pay back only the interest over a set period of time, before converting to interest and principal repayments for the remainder of the loan term.

With an interest-only loan, your repayments are typically smaller for the interest only period, and then increase once the interest-only period ends and the principal is included in the loan repayment. You also would need to take into account the timing of fixed rate interest periods and their conversion into a variable interest rate.

It can be a complicated evaluation process when deciding how to structure your home loan, particularly if you are planning on purchasing a property in the very near future. Given this, consider consulting an expert to discuss options for structuring a mortgage for your unique set of circumstances.

Enquire about competitive IMB Bank Home Loan options

Articles on Financial Wellbeing

Need support?

Contact us

Get in touch with one of our Australia-based team.

Locate us

Our friendly branch staff are looking forward to helping you achieve your financial goals.

Important Information


1. Reserve Bank of Australia, Financial Stability Review, April 2016

This article has been prepared by IMB Bank and contains general information only. It is not intended to be relied on as advice. It does not take into account your objectives, financial situation or needs. You should seek your own legal, financial, taxation or other professional advice before you make any decisions about your business. Consider the relevant Terms and Conditions or Product Disclosure Statement and Target Market Determination available here before deciding whether to acquire any products or services offered by IMB Bank. Lending criteria, terms and conditions, fees and charges apply to IMB loan products.  

IMB Bank does not recommend any third party products or services referred to in this article and we accept no liability in relation to them. Any links to third party websites are for your information only and we do not endorse any content on those sites.