One of the first choices you’ll make with a home loan is whether the interest rate is fixed, variable or a mix of both. None is “best”. Each suits different people at different times.
Variable rate loans
A variable rate can move up or down whenever the lender changes it.
- Upside: usually more flexible. Extra repayments, redraw and offset accounts are common, and you can generally switch or pay out the loan without break costs.
- Trade-off: your repayments can rise, so you need room in your budget.
Fixed rate loans
A fixed rate is locked in for a set period, commonly one to five years.
- Upside: your repayments stay the same for the fixed period, which makes budgeting easier.
- Trade-off: less flexibility. Extra repayments are often capped, offset accounts may be limited or unavailable, and ending the loan early can trigger break costs that are sometimes large. If rates fall, you don’t benefit until the fixed period ends.
Split loans
A split loan fixes part of your loan and leaves the rest variable. You get some certainty and some flexibility. You choose the proportions, for example half and half.
Questions worth asking yourself
- How would I cope if my repayments rose?
- Do I plan to make extra repayments or use an offset account?
- Could I sell, renovate or refinance in the next few years?
- What happens when the fixed period ends, and what rate will the loan roll onto?
What happens when a fixed rate ends
When a fixed period finishes, the loan usually moves to the lender’s variable rate, which may not be its sharpest. That’s a good moment to review your loan rather than let it roll over.
Want to talk it through?
We can show you how each option would work for your loan, including the fees and conditions that are easy to miss. Book a free 15-minute chat.
This article is general information only and doesn’t take your personal circumstances into account.