Fixed vs Variable

With interest rates at an all time low, and price being influenced by more than just the RBA cash rate, it’s anyone’s guess as to when rates will move and by how much. As a result, borrowers may be feeling uncertain as to which type of loan is best for them in the long and short run – fixed or variable. However, the home loan market isn’t just a game of chance. By considering your individual circumstances, the pros and cons of available options and utilising tools such as ahome loan comparison tool, you are more likely to be able to find a solution that works best for you.

Why choose a fixed home loan?

1. It allows for greater stability
   
   A lot of borrowers look to fixed home loans as a source of stability. By locking in your mortgage rate, you allow yourself protection from future interest rate increases for the duration of the fixed period. Fixed rates allow borrowers the confidence of knowing if they can afford repayments now, then they can still afford to make them for the rest of the fixed period (if their circumstances stay the same), whether rates rise or drop.

1. Enjoy those market lows
   
   One of the advantages variable home loans have over fixed is that when rates drop, your interest rate drops too, helping you to save money on your repayments. The lender will consider a range of factors to determine your variable interest rate. For example, the RBA cash rate, the ratio of fixed versus variable loans they currently have, regulatory requirements, internal financial measures, market pressures and competitor pricing, to name a few. For example, according to Rate City, choosing a variable home loan rate in September 1991 (the end of the recession in Australia) would have saved borrowers tens of thousands in interest repayments compared to those who fixed, as the RBA cash rate fell 4.75 percentage points over the next three years.
   
    
2. Flexibility and features
   
   Variable home loans are typically known to have more flexibility and features for borrowers. Extra payments are allowed at no extra cost (often unlimited), helping you to pay back your debt faster. You can also enjoy additional loan features such as redraw facilities and offset accounts, however these are also available on Community First’s fixed home loans, which is rare in the market. It can also be easier and cheaper for borrowers to refinance their variable home loan with another lender as they don’t need to pay a penalty to break the fixed period.