Fixed VS Variable – which one is best for you?

What Is a Variable Rate Home Loan?

Variable rate loans are the option you choose when you don’t want to fix your loan and are happy to have your interest rate move with changes in the market.

This means the interest rate can rise and fall throughout your home loan, so your repayments can change over time.

A variable rate home loan can provide greater flexibility, particularly for borrowers who want to make additional repayments or use features such as an offset account.

Advantages of a Variable Rate Home Loan

One of the advantages of a variable-rate home loan is that extra repayments are usually allowed, depending on the lender and loan product. Making additional repayments can help reduce the amount of interest you pay and may allow you to pay off your home loan sooner.

It can also be easier to switch your home loan if you happen to find a better deal elsewhere. The costs and conditions involved will depend on your lender and loan product.

Variable home loans often offer more features, such as the ability to make additional repayments into an offset account or access to a redraw facility, depending on the loan.

Another advantage is that if interest rates fall, your home loan repayments may also fall, potentially saving you money in the short term.

Disadvantages of a Variable Rate Home Loan

One disadvantage of a variable-rate home loan is that budgeting can be a little harder. It can be more difficult to plan your finances when you are unsure of what interest rates may do in the future.

There is also the possibility of mortgage stress if you are not prepared for an increase in your repayments. If interest rates rise, you could find yourself paying more each month and potentially paying more interest over the course of the loan.

What Is a Fixed Rate Home Loan?

A fixed rate home loan allows you to lock in your interest rate for a set period. This period is often between 1 and 5 years, depending on the lender and loan product.

During the fixed rate period, your interest rate generally remains the same, giving you greater certainty around your regular repayments.

At the end of the fixed term, the loan will generally switch to the variable rate offered by the lender unless you arrange another fixed period or refinance.

Advantages of a Fixed Rate Home Loan

One of the biggest advantages of a fixed rate loan is that it can make budgeting easier. You know what your repayments are expected to be during the fixed period, allowing you to plan and set budgets with greater confidence.

Another advantage is protection from interest rate rises during the fixed period. If interest rates increase above your fixed rate, your rate generally won’t increase during the fixed term.

This can provide some peace of mind for borrowers who prefer repayment certainty.

Disadvantages of a Fixed Rate Home Loan

The main disadvantage is that if interest rates fall, you generally will not benefit from the lower rates during your fixed period. This could leave you paying more than you would with a variable-rate loan.

Making extra repayments can also be limited. Additional repayments may be restricted for a fixed period, and repayments above the permitted limit may incur fees or other charges, depending on the lender.

A redraw facility may also not be available on some fixed rate loans.

There may also be fees if you decide to change or pay off your loan during the fixed-rate period. These are sometimes referred to as break costs or break fees and can vary depending on the lender and circumstances.

What Is a Split Rate Home Loan?

Another option is a split-rate home loan if you are unable to decide between fixed and variable rates.

This can give you some of the benefits of both options, especially if you are unsure of which way interest rates may move.

A split rate loan means you can split your home loan between fixed and variable portions. This allows you to manage some of the risk associated with interest rate movements while still having the flexibility to make extra repayments on the variable portion, subject to the loan’s terms.

You can generally choose a split that suits your needs, although the available options will depend on the lender.

Fixed vs Variable: Which One Is Best for You?

There is no single answer as to whether a fixed or variable home loan is best. Whatever decision you make needs to work for you and your circumstances.

You need to take into account your cash flow and your need for security and stability. If knowing what your repayments will be is important to you, a fixed rate may provide greater certainty.

On the other hand, if you want more flexibility and the ability to potentially benefit from falling interest rates or make additional repayments, a variable loan may be more suitable.

A split loan may also be worth considering if you want to divide your loan between fixed and variable rates.

The right choice will depend on your individual financial circumstances, preferences and goals.

How Can Lime Mortgage Brokers Help?

Choosing between a fixed, variable or split rate home loan can be difficult, particularly when you are trying to understand the differences between loan features, repayments and interest rates.

At Lime Mortgage Brokers, we want to help you understand your home loan options and provide valuable information to guide you through the loan process.

Our team can help you compare your options and understand the different loan structures available to you.

You can also meet the Lime Mortgage Brokers team to learn more about our team and mortgage broking services.

Contact Lime Mortgage Brokers Today

If you are considering a fixed or variable home loan and are unsure which option may suit your circumstances, the team at Lime Mortgage Brokers is here to help.

We can discuss your situation, explain your options, and help you understand the differences between fixed, variable, and split-rate home loans.

Contact Lime Mortgage Brokers today to discuss your home loan options.

Frequently Asked Questions

Conclusion

Choosing between a fixed and variable home loan is an important decision. Both options have advantages and disadvantages, and what works for one borrower may not work for another.

A fixed rate can provide greater certainty around your repayments, while a variable rate can offer greater flexibility and the potential to benefit if interest rates fall. A split rate loan may also provide a balance between the two.

Before making a decision, it is important to consider your cash flow, financial circumstances and how much repayment certainty or flexibility you need.

Here at Lime Mortgage Brokers, we want to help you make informed decisions and provide valuable information to guide you through the loan process.

“Our knowledge and experience is yours.”

Shawn Swart
t. 0415 761 799
e. shawn@limemortgagebrokers.com.au
w. www.limemortgagebrokers.com.au

Disclaimer

The information contained on the Lime Mortgage Brokers website and in its posts is for general information purposes only. Lime Mortgage Brokers assumes no responsibility for errors or omissions in the contents of this publication. The information we provide may not be relevant for all individual circumstances. You should always seek professional advice before taking action in relation to any of the matters discussed in this publication.