Choosing the right loan for you can sometimes be overwhelming and confusing. There are a wide variety of options available, with different rates and feature.
Understanding the difference between a variable and fixed rate is important so we can tailor a solution to suit your individual circumstances.
Below is a rundown of the pros and cons of each option to see which works best for you.
Variable Rate
Variable rate home loans are a popular choice and allows you to pay off your loan sooner. The interest rate you are charged fluctuates depending on the market interest rates – but also the banks can change them at any time too.
Pros
- Repayments decrease if your interest rate decreases
- More features available like redraw and offset accounts
- Can make extra repayments to pay the loan off sooner
- Ability to switch lender/loan easier
Cons
- Repayments increase if your interest rate rises
- Basic rate loans don’t offer features like offset and redraw
- Less certainty and control over repayments as they change
Fixed Rate
Fixed rate home loans allow you to lock in a rate for a set period of time. You can enjoy the certainty of knowing your monthly repayments. The rate will revert to a standard variable rate once the chosen period has ended.
Pros
- Consistency with monthly repayments and can make budgeting easier
- Protects you from higher repayments in an rising interest rate environment
- When rates are low you can have lower repayments and pat less interest over the life of the loan
Cons
- If interest rates decrease, you are locked into a higher rate for the period you agreed to
- Generally don’t offer features like offset and redraw
- You may be liable for break costs if you wish to payout the loan earlier
- Switching lenders/loans isn’t as easy due to potential break costs
Can I have the best of both?
The short answer is yes – there is such a thing as a split loan. This is were you can have for example 60% of your loan on a variable rate and the remaining 40% as a fixed rate. This doesn’t work for all circumstances, but we can see if it works for you!
This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
