Fixed, Variable, and Split Loans: What to Consider

Choosing Between Fixed, Variable, and Split Loan Structures

A fixed rate locks your interest rate for a set period, typically one to five years. A variable rate moves with market conditions and lender policy changes. A split loan divides your borrowing between both structures. The decision affects your repayments, flexibility, and exposure to rate movements from the day you settle.

Chadstone buyers often purchase close to the suburb's median, which means even small rate differences compound over time. Consider a buyer borrowing to purchase a two-bedroom apartment near Chadstone Shopping Centre. They lock in a three-year fixed rate at 6.2% on the full loan amount. Eighteen months later, variable rates drop to 5.8%. Their fixed rate remains at 6.2% for the remainder of the fixed term, and they continue paying more than they would on a variable loan. They also face restrictions on additional repayments, typically capped at $10,000 to $30,000 per year depending on the lender.

A variable rate would have allowed them to benefit from the rate drop immediately and make unlimited extra repayments without penalty. However, if rates had risen instead, their repayments would have increased accordingly. This is the core consideration when deciding between rate structures.

Fixed Rate Loans: When Certainty Matters More Than Flexibility

Fixed rates provide stable repayments for a defined period. You know exactly what you will pay each month, which supports budgeting and protects you from rate rises during the fixed term. However, you give up flexibility. Most fixed rate products restrict additional repayments and do not offer offset accounts. If you exit the fixed term early, break costs apply.

Break costs are calculated based on the difference between your fixed rate and the lender's current wholesale funding cost for the remaining fixed period. If rates have fallen, break costs can be substantial. If rates have risen, break costs may be zero or the lender may even provide a rebate. Lenders do not waive break costs when you sell your property or refinance. The calculation is based on economic loss to the lender, not your circumstances.

Fixed rates are often slightly higher than variable rates at the time of application, reflecting the lender's funding cost and the certainty premium. For buyers who prioritise stability over flexibility and do not plan to make large additional repayments, a fixed rate can be appropriate. For buyers purchasing investment property in Chadstone and relying on rental income to service the loan, predictable repayments can reduce cash flow risk.

Variable Rate Loans: Flexibility and Full Feature Access

Variable rates move in response to changes in the Reserve Bank cash rate, lender funding costs, and competitive positioning. Your repayments can increase or decrease at any time. This creates uncertainty, but it also provides flexibility. Variable rate products typically allow unlimited additional repayments, full redraw access, and the option to link an offset account.

An offset account is a transaction account linked to your loan. The balance in the offset account reduces the loan balance on which interest is calculated. If you have a loan balance of $600,000 and $50,000 in your offset account, you pay interest on $550,000. The offset operates daily, and the interest saving can be substantial over time. Offset accounts are not available on most fixed rate products.

Variable loans also allow portability. If you sell your Chadstone property and purchase another within a set timeframe, usually 90 days, you can transfer the existing loan to the new property without reapplying or paying discharge fees. This is particularly relevant for buyers who may upgrade or relocate within a few years.

For buyers with irregular income or lump sum payments, such as annual bonuses or rental income from other properties, a variable loan allows you to reduce the principal balance without restriction. This flexibility can reduce the total interest paid over the life of the loan and shorten the loan term.

Split Loan Structures: Combining Both Approaches

A split loan divides your borrowing into two portions: one fixed and one variable. The split can be any ratio. A common approach is 50/50, but 60/40 or 70/30 splits are also used depending on your priorities.

The fixed portion provides repayment certainty on part of your borrowing. The variable portion retains flexibility and access to features like offset and unlimited repayments. If rates fall, the variable portion benefits immediately. If rates rise, the fixed portion remains unaffected. The structure does not eliminate interest rate risk, but it reduces your exposure in either direction.

In a scenario where a buyer borrows $700,000 to purchase a three-bedroom townhouse in the residential streets south of Dandenong Road, they might fix $400,000 for three years and leave $300,000 on a variable rate with a linked offset account. They direct their savings into the offset account, which reduces interest on the variable portion. Their fixed portion provides stable repayments on the majority of the loan. After three years, they can reassess and decide whether to refix, move entirely to variable, or maintain a split structure.

This approach requires two loan accounts, which may involve separate fees. Some lenders charge an annual fee on each loan account, while others charge a single package fee covering both. The administrative structure is slightly more involved than a single-rate loan, but the flexibility often justifies the added complexity.

Interest Rate Movements and APRA Serviceability Rules

Lenders assess your borrowing capacity using the loan product rate plus a serviceability buffer of at least 3.0 percentage points, as required under APRA prudential standards. This buffer applies whether you choose a fixed, variable, or split loan. Your maximum borrowing capacity is the same across all three structures at the time of application.

However, your actual repayments after settlement depend on the rate structure you select. If you fix at a higher rate, your repayments will be higher than if you had chosen a variable rate at the time, assuming the variable rate was lower. The serviceability assessment does not change, but your cash flow position does.

APRA also introduced debt-to-income lending limits from 1 February 2026. Lenders can extend no more than 20% of new owner-occupier loans to borrowers with a total debt-to-income ratio of six times or greater. This applies to your total borrowing across all loans, not just the loan for your Chadstone property. The limit applies to new lending only and does not affect existing borrowers. It does not change the comparison between fixed, variable, and split structures, but it may reduce the loan amount you qualify for if your income is modest relative to your total debt.

Refinancing and Rate Structure After Your Fixed Term Ends

When your fixed term ends, your loan automatically reverts to the lender's standard variable rate unless you take action. The reversion rate is often higher than the variable rate offered to new borrowers. This is the point where many borrowers refinance to access lower rates or negotiate a discount with their current lender.

If you hold a split loan, only the fixed portion reverts. The variable portion remains unchanged. This creates an opportunity to reassess the split ratio. You might choose to refix the same portion, refix a different portion, or move entirely to variable.

Refinancing involves a new application, a new valuation, and potential discharge and establishment fees. However, the interest saving over the following years often outweighs the upfront cost. For buyers who purchased in Chadstone during a period of high property values and have since built equity through repayments or capital growth, refinancing can also provide access to a lower loan-to-value ratio and a reduced interest rate.

Borrowers with a low deposit loan who paid lenders mortgage insurance at the time of purchase may find that their equity position has improved enough to refinance at a lower rate without further LMI. The LVR is recalculated based on the current loan balance and the property's current value, not the original purchase price.

Choosing the Right Structure for Your Situation

Your choice depends on your cash flow, savings behaviour, and tolerance for repayment fluctuation. Buyers with minimal savings beyond the deposit and settlement costs often prefer a fixed rate for the repayment certainty. Buyers with ongoing savings or irregular income often prefer variable or split structures to retain flexibility and offset capability.

Chadstone is well-serviced by public transport, including Chadstone Shopping Centre's bus interchange and nearby Holmesglen Station on the Glen Waverley line. Proximity to Monash Freeway also makes the suburb accessible for owner-occupiers commuting to the CBD or the south-eastern employment corridor. These factors support sustained demand and stable property values, which means buyers are more likely to remain in the property for several years. A longer ownership period makes the flexibility of a variable or split loan more valuable, as you have more time to benefit from offset and additional repayments.

For buyers purchasing investment property in Chadstone, the offset account provides a clear tax advantage. Rental income and other funds can be held in the offset account, reducing interest on the investment loan while keeping the funds accessible. Interest on an investment loan is deductible against rental income, but the offset structure reduces the total interest incurred without triggering any tax disadvantage. This differs from making additional repayments, which reduce the deductible interest expense.

Call one of our team or book an appointment at a time that works for you. We compare products across the panel and structure the loan to suit your circumstances, whether you are purchasing in Chadstone or refinancing an existing property.

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