What are the pros and cons of fixed vs variable home loans?

Fixed-rate loans lock your rate for a defined term - typically 1-5 years. Pros: budget certainty, you know your repayment exactly, immune to RBA rate hikes during the fixed period. Cons: break costs if you sell or refinance early (can be tens of thousands on a 5-year fix), no offset account on most fixed products, you don't benefit if rates fall.

Variable-rate loans track the lender's standard rate, which moves with RBA cash-rate decisions. Pros: offset account compounds tax-free against your interest cost (a $50K offset balance on a 6% loan saves $3K/year), redraw flexibility, lump-sum extra repayments accelerate principal pay-down. Cons: rate uncertainty - repayment can rise quarterly with RBA cycle.

Split loans (part fixed, part variable) hedge both ways. Common split: 70% fixed for 3 years, 30% variable with offset. Locks in budget certainty on the bulk while keeping offset benefit on a meaningful chunk.

When to fix: rate-cut cycle near bottom (lock low rates before they reverse), budget can't absorb +1% in a year, fixed-rate offer materially below current variable. When to stay variable: rate-rise cycle topped (won't lock in the peak), planning to extra-repay aggressively, offset balance is high relative to loan.