The Advantages and Disadvantages of fixed and variable interest rates, in 2021

2021 just might be the year to take a look at your finances, and you may even want to make the switch between fixed and variable interest rates. We'll explain how it all works.

Besides the hope of a quick post-pandemic recovery…. another thing on the mind of many Australians in 2021, is the state of their finances!

In 2021 it is important to think about your financial situation, and really try to figure out if you are saving money, or how you can do so, and if you are a home owner 2021 just might be the year in which you decide to switch between a fixed and variable interest rate.

Let us explain how it works!

What is the difference between a variable rate and a fixed rate mortgage?

Variable and fixed rates are available can be accessed by property investors and home owners alike, however both options have their pro’s and con’s, depending on your current financial situation.

Variable interest rate loans

Mortgages with variable interest rates are impacted by the “cash rate” and its changeable nature. So your lender will most likely lower your interest rate, if the cash rate decreases. Naturally this may work in the favour of many borrowers, as lower interest rates can help any situation. However it is always important to find out if there may be any potential spikes on your interest rate, as the opposite effect can also happen (if interest rates rise). 

Variable rate loans can also give you payment flexibility, and allow you to make as many repayments on your loan, as you may wish. Whilst giving you access to various helpful loan features such as, loan portability, offset account, and a redraw facility. 


  • Variable rate home loans are normally lower than fixed rate home loans.
  • When interest rates drop your loan repayments will also fall.
  • Variable loans provide options that allow borrowers to make extra repayments, and this can be of great aid, if you wish to pay of your loan faster.


  • If interest rates rise, your loan repayment will also subsequently rise.
  • It is more likely that you would have paid more on your loan repayments, than if you were on fixed term loan over the same time period.
  • There could be higher uncertainty in cash flow, as rates can change at any time.

Fixed interest rate loans

Fixed interest rate mortgages, have set interest rates attached to them, during specific periods, and most borrowers find fixed rates beneficial, due to the fact that changes to the RBA cash rate (which influences interest rates) do not affect them, when under a fixed rate.

Fixed rate home loans, are normally between one and five years, and will allow borrowers to switch to a variable rate, or refinance one fixed rate mortgage to another.


  • Lenders are more likely to offer cheaper fixed interest rates, in these turbulent times, than variable rates.
  • You will know exactly how much your repayments will be during the period, giving you a greater sense of comfort and reassurance.
  • There are more competitive fixed rate loan deals in 2021 


  • You may not be allowed to make extra repayments on your loan, and certain lenders may even have a cap on additional payments.
  • Fixed rate loans may have limited loan features available to borrowers.
  • You could incur “break costs” if you refinance your fixed rate loan before the fixed term officially ends. 

If your financial situation, or current mortgage has left you without a strong sense of security, then a fixed rate home loan just might give you a greater sense of ease and comfort, in such challenging times. Most especially if you want to attain certainty, with your mortgage and its repayments.

Is 2021 the year to fix your interest rate?

Fixing your interest rate in 2021 may work in your advantage, due to the fact that interest rates are low in the current market, most especially since the RBA (Reserve Bank of Australia) has declared that there will be no changes on the cash rate of 0.1%, for another 3 years.

Since such is the case, it means that borrowers are in luck, and it may be wise to take advantage of the current situation, by fixing your their interest rate in these present times, as opposed to later.

As many are aware that the tide is soon to change, and depending on your situation, it is more likely that you will have greater financial security, if you are to do so now.

Is it easy to switch between a variable and fixed interest rate?


With the digitisation of home loan applications nowadays, and the rise of online home platforms such as Abacus Finance. You will be pleased to now that you can go through the process with ease. 

Making the switch from a variable interest rate to a fixed rate or vice-versa, is do-able, since variable rates are not locked into fixed term contracts. Such terms enable you to refinance, or switch between variable and fixed interest rates, without much hassle and sometimes in as little as 21 days.

If you are refinancing from a fixed rate, there are times in which you may find that the process can be challenging, as you may have to wait until your fixed-term period ends. 

In such cases it is wise to wait, as your bank may refer to your actions as “breaking” your contractual agreements and loan terms, if you are to refinance part way through a fixed rate loan, and they may therefore seek to charge a “break fee”, which can be expensive. 

Considering all factors, it is important that you speak with a home loan expert, so that you are aided with the right information, when deciding to switch between fixed, and variable interest rates.

Got a question? Speak to us!

Abacus Finance is here to help! Get trusted expert advice from our friendly team, at a time that suits you.

Feel free to contact Abacus Home Loans on 1300  26 8686

Get the help you need, today!

 The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

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