Buying a new home is an exciting milestone, whether it’s your very first place or a new home for your growing family. But choosing the right home loan can sometimes feel overwhelming.
One of the biggest decisions you’ll make is to choose a fixed or variable interest rate. There’s no one-size-fits-all answer: a fixed rate home loan offers security and stability, while a variable rate home loan provides flexibility and access to additional features.
If you’re unsure which option is right for you, here’s a simple breakdown to help you decide.
What is a fixed rate home loan?
A fixed rate home loan is locked in for a set period and gives you the certainty of knowing exactly what your repayments are as your interest rate stays the same throughout that time. The fixed term can range from one to five years, depending on the lender. Once the fixed period ends, your loan will generally roll off onto a variable rate.
What are the advantages of a fixed rate home loan?
Because your rate is locked in, you’re protected from any interest rate rises during the fixed period. This gives you the confidence of knowing exactly what your repayments will be, making it easier to plan ahead and budget accordingly. It can be especially beneficial if you secure your rate when interest rates are low.
With our Premium Plus Package Fixed Rate Home Loan, you’ll also have the flexibility to redraw any extra funds you’ve paid ahead of schedule. Redraws are available on application (up to $25,000 per calendar year, with a minimum redraw amount of $500) – a feature not always available with other fixed rate loans.
What are the disadvantages of a fixed rate home loan?
While a fixed rate home loan protects you from rising interest rates, it also means you won’t benefit if rates go down during your fixed period. In most cases, fixed rate loans also don’t offer access to a mortgage offset account which can help reduce the amount of interest you pay over time. You may face significant fees if you pay off the loan early or break the fixed term.
What is a variable rate home loan?
A variable rate home loan is one where your interest rate can move up or down in line with changes to the market, the Reserve Bank of Australia (RBA) cash rate, and your lender’s own rate decisions. This means your repayment amounts may increase or decrease over time, depending on which way interest rates move.
What are the advantages of a variable rate home loan?
If interest rates fall, you’ll benefit from lower monthly repayments. A variable rate home loan also offers greater flexibility, allowing you to make extra repayments or pay off your loan sooner if you come into a lump sum. Many variable loans also include helpful features like an offset account and a redraw facility, which can help you save on interest and manage your money more effectively.
What are the disadvantages of a variable rate home loan?
While a variable rate home loan lets you benefit when interest rates fall, you’ll also pay more when they rise. Because your repayments can change over time, it can be a little harder to budget.
What is a split home loan?
You can also choose to split your home loan, which means paying a fixed rate on part of the loan and a variable rate on the rest. It can be a good way to get a combination of two worlds – the security of fixed repayments on one portion, and the flexibility of a variable rate on the other. This gives you a balance between certainty and adaptability, helping you manage your repayments while still taking advantage of any rate drops. You’ll also retain access to features like offset and redraw, which are often only available with variable rate loans.
What are the advantages of a split home loan?
A split loan gives you the stability of fixed repayments on one part of your loan, making it easier to budget. At the same time, the variable portion lets you take advantage of any rate drops, giving you more flexibility. You’ll also keep access to useful features like offset and redraw on the variable side. Because only part of your loan is exposed to rate changes, you’re protected from the full impact of rising interest rates. You can also choose how you want the loan divided, giving you a level of customisation that suits your goals.
What are the disadvantages of a split home loan?
You only receive partial benefits when rates fall, as the fixed portion won’t change. Split loans can also be a little more complex to manage because each portion works differently. You may face break costs if you want to refinance or repay the fixed part early. Features can also vary between the portions, so you’ll need to keep an eye on how each part works.
Before you decide
Whichever loan type you choose, it’s important to understand what your repayments will look like before signing any loan agreement or contract of sale. Use our home loan calculator to estimate your repayments and find the option that works best for you, or you can talk to one of our local experts.