Fixed vs Variable:

There is a lot more to your home loan than fees and rates. There are many different types of loans and features to suit your lifestyle and financial position. Deciding what is right for you can be confusing, however we are here to help you make an informed decision.

Have you heard the terms “Fixed” or “Variable” when looking into a loan? This is regarding the interest rate on your loan and whether your mortgage repayments stay the same with a fixed interest rate or whether they move up or down according to the Lenders variable interest rate at the time.

So, what could this mean for your loan?

Variable Rate:

Interest rates will continue to move up and down depending on factors including the official cash rate, market conditions, and each lender’s decision. When the interest rates go down, so will your minimum mortgage repayments. However, when interest rates go up, that means your mortgage repayments will too.
The pros of having a variable rate can include:

• Repayment flexibility: Variable rate loans allow for a winder rage of repayment options, including the ability to pay off your loan faster without incurring any fees. Some variable rate loans also allow features like offset accounts or redraw facilities that work to reduce the loan balance you pay interest on, while still allowing you to access surplus funds.
• Easier to refinance: If you find a better deal with a different lender, it is normally much easier to switch to a different lender if you are on a variable rate, without incurring any break costs.
• You stand to pay less if interest rates reduce: Lenders may reduce interest rates for a variety of reasons. Normally in response to the current cash rate at the time and external factors. If you are on a variable rate, this means you reap the benefits of lower repayments on your mortgage.

The cons of having a variable rate can include:

• You stand to pay more if interest rates rise: As mentioned above, if interest rates increase, your rate is likely to also increase and therefore your repayments will also.
• Cash flow uncertainty: As rates can change at any time, it is not easy for you to predict your mortgage repayments over a long period of time. This means a variable loan requires more flexibility. It is also important to make use of loan features such as offset accounts and redraw facilities to help cash flow concerns.

Fixed Rate:

Interest rates can typically be fixed from one to five years. This means that even if rates change, your repayments will stay the same over the fixed period. This can help manage your budget by knowing exactly what you’ll have to pay.

The pros of having a fixed rate can include:

• Rate rises won’t impact you: If you enjoy predictability and stability in your repayments, a fixed rate may best suit you. Some lenders will guarantee a certain fixed rate before settlement. However, in some cases, a “rate lock” fee may be applicable to ensure you obtain the agreed fixed rate at the time of settlement.
• Set repayments: Locking in a fixed interest rate means that you have set repayments that will not change during this fixed period of time. This can make it easier to budget and manage cashflow.

The cons of having a fixed rate can include:

• Less flexibility: Fixed rate loans are excellent for predictability, however, limit a borrower’s ability to pay off their loan faster by restricting additional repayments or capping the at a certain amount per year. Significant break costs may apply if you chose to refinance, sell your property, or pay off your loan in full before the fixed term has ended.
• Rate cuts won’t benefit you: If you have signed for a fixed rate loan, unfortunately you won’t benefit from any rate decreases over the fixed period.

Your interest rate:

At the end of the day, your chosen interest rate whether fixed or variable can be chosen to best suit you and your lifestyle. If you enjoy the predictability of set repayments and management of cash flow, then a fixed interest rate might be the best option for you. However, if you enjoy flexibility, wish to pay off your loan sooner and can manage cash flow with rates increasing or decreasing, than a variable rate may better suit you. Either way, we can find a home loan tailored to you and your needs.

Get in touch today to learn more!