Fixed vs Variable home loans
The right home loan can save you thousands of dollars and years off your repayments, so it’s a good idea to compare home loans to find one that will suit your changing needs.
Whether you choose a fixed rate or variable rate mortgage will depend on your individual circumstances and financial goals. You should examine your financial position and assess things like:
- Your current work situation
- Your current and expected future income/salary
- Whether you may be looking to sell your property in the near future
- Expected changes in the future, such as starting a family.
You can choose to ‘fix’ your home loan interest rate for part of your loan term. This means if interest rates rise or fall, you will pay the same rate.
Some of the benefits of a fixed rate home loan include:
- Enjoy the assurance of knowing exactly what your repayments will be, with the confidence to budget accurately and plan your finances
- Take advantage of low interest rates and protect yourself from rate increases
- After the fixed term ends, you can switch to a flexible home loan with a standard variable rate.
A fixed rate doesn’t give you all the flexible features you can enjoy with a standard variable rate, such as making unlimited extra repayments and withdrawing repayments from the loan. There may also be penalties for paying your loan out early and switching to a variable rate during the fixed rate period.
A variable rate loan is where interest rates rise and fall throughout the term of the loan, according to a number of factors including the official interest rate, which is set by the Reserve Bank of Australia (RBA). If your repayments are a combination of principal and interest, your repayments may vary each month.
Some of the benefits of a variable rate home loan include:
- A variety of features and flexibility, such as introductory rates and repayment holidays
- If you have surplus cash each month you can make unlimited extra repayments to pay off the loan faster and be in a better position later on, should the interest rate increase
- You can withdraw extra repayments to pay for a big purchase like a holiday, car or renovations
- The savings in your transaction account can help reduce your loan balance, with 100% interest offset on a Mortgage Interest Savings Account (MISA) or Everyday Offset.
You can safeguard against an unpredictable market by taking out a split rate loan, which allows you to 'hedge your bets' by nominating how much is fixed and variable. Many homeowners choose to split their loan to have both certainties of future loan payments and an element of flexibility with a portion of the loan on a variable rate.
Talk to one of our lending experts who can help you work out if this option is right for you. You can make an appointment online, by phone on 13 2224 or in your closest branch.