Interest rate basics - Fixed vs Variable

Fixed vs Variable Home Loans: Fast Facts for Australian Borrowers

Fixed vs Variable Home Loans: Fast Facts for Australian Borrowers

Choosing the right home loan means juggling certainty and flexibility. The two main types (fixed rate and variable rate) each come with their own perks and catches. Here’s a quick guide to help you decide which may suit your goals.

Fixed Interest Rate Home Loans

A fixed rate loan keeps your repayments steady for a set time (usually 1 - 5 years), no matter what the Reserve Bank or market does.

Pros:

• Stable repayments: Easy to budget with no surprises from repayment increases during the agreed fixed rate period.
• Rate rise protection: If interest rates go up, yours won’t.

Cons:

• Less flexibility: Extra repayments or early payout can trigger fees.
• No benefit if rates drop: You’re locked into your agreed rate, even if others fall.

Variable Rate Home Loans

Variable loans move with the market, meaning that your repayments can go up OR down.

Pros:

• Flexible: Pay extra, redraw on any funds paid in advance of your standard payments, or refinance as needed.
• Savings potential: If rates drop, so do your repayments.

Cons:

• Repayments linked to interest rates, making it harder to plan if rates rise.
• Potentially increased long term cost if rates climb over time.

Which Should You Choose?

There’s no one size fits all answer. Some borrowers prefer the best of both worlds with a split loan. Think about your risk tolerance, need for flexibility, and how much budget certainty matters.

For guidance that fits your situation and keeps things simple, The team at The Finance Brokers can help cut through the options and match you with a loan that works for your needs.