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Fixed or variable home loans: which is right for you?

Fixed or variable home loans

Choosing to go with a home loan that offers a fixed or variable rate of interest will depend on several factors, including your personal and financial circumstances.

When taking out a home loan, one of the biggest decisions you’ll need to make is what type of loan to take out.

Fixed and variable interest rate home loans both offer unique advantages and certain conditions that can impact your decision, depending on your personal and financial circumstances.

Here are some of the key factors to consider when working out which type of home loan is right for you.

Advantages of a fixed rate home loan

The main advantage of a Fixed Rate Home Loan is certainty. You can lock in or ‘fix’ your interest rate for a certain period of time – typically between one and five years – and plan for the future, knowing that your repayments will stay the same during that time.

With CommBank Fixed Rate Home Loans, when the fixed term ends your loan will usually automatically roll over to the applicable standard variable rate, or you can choose to refix your home loan.

Key points:

  • Lock in your interest rate so you know what your repayments will be
  • Set weekly, fortnightly or monthly repayments
  • Protect yourself against interest rate rises
  • Plan for the future and set financial goals with confidence.

Things to consider about a fixed rate home loan

A fixed rate home loan is not as flexible as a home loan with a variable rate. This may be worth keeping in mind if you think your financial situation is likely to change in the future.

Key points:

  • With CommBank fixed rate home loans you can only make up to $10,000 in additional repayments per annum without incurring an early repayment adjustment 
  • You cannot redraw any additional repayments you’ve made during the fixed rate period
  • There may be an early repayment adjustment for paying your loan out early
  • You won’t benefit from any future interest rate falls.

Advantages of a variable rate home loan

If you’re looking for flexibility and a range of features in your home loan, a Standard Variable Rate Home Loan may be better suited to you.

With a variable rate loan, your interest rate can rise or fall throughout the term of the loan. The interest rate a bank offers can be affected by a number of factors, including in part the official cash rate set by the Reserve Bank of Australia (RBA) as well as higher or lower funding costs for the lender.

Key points:

  • With CommBank variable rate home loans you can make unlimited additional repayments
  • You can also make unlimited redraws on any additional repayments you’ve made, fee-free on most CommBank home loans (excludes loans with a subsequent mortgage to another lender and Economiser / 3 Year Economiser Interest Only Home Loans for the life of the loan)
  • Enjoy full interest offset benefits when you open an Everyday Offset account, which may help you save on the interest you pay. Full offset means that interest is not charged on the part of the home loan balance equal to the balance of the Everyday Offset

Things to consider about a variable rate home loan

A variable rate home loan can help you repay your home loan sooner by taking advantage of falling interest rates and continuing to pay the same repayments when rates fall. But if interest rates go up,  your lender may increase your repayments.

Key points:

  • Your repayments may increase if rates go up
  • It can be harder to budget for the future as you can’t be sure how interest rates might move

Splitting your loan

You can also choose to split your home loan, by nominating a proportion of the loan as fixed and a proportion as variable. This means you have the certainty of a fixed rate on part of your loan as well as the flexibility to make extra repayments on the variable rate part of your loan.

One of our lending experts can help your work out if this option is right for you. You can make an appointment online, by phone on 13 2224 or by visiting your nearest branch.

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This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Applications for finance are subject to credit approval. Full terms and conditions will be included in our loan offer. Fees and charges are payable.