Is fixed or variable better?

There is always a great deal of debate around fixed and variable home loans, so how do you know which to pick? No matter what the interest rates are doing, a fixed rate home loan will not be for everyone. It’s important to think about fixed vs variable rate home loans and the pros and cons of fixing your home loan.

Advantage of a fixed rate home loan

The main advantage of a fixed rate loan is that it gives you cash-flow certainty. That is, you know exactly how much your loan repayments will be over the fixed term period. When you are a new homeowner or are setting up a business, this certainty can give you great peace of mind.

Disadvantage of a fixed rate home loan

The main disadvantages of fixed rate home loans are that fixed term loans tend to be inflexible – and can be expensive if you break the contract! You also miss out on the benefits of any interest rate decreases over the timeframe of your fixed term.

Remember that, as always, conditions and potentially fees will apply to fixing your home loan, and you should look at the comparison rate of products on your shortlist as well as their current advertised rates.

Fixed rate home loans provide stability of knowing that the repayment will be the same every month. A fixed rate term does lock applicants into one interest rate for a period of time, however; if interest rates drop, it might end up costing comparatively more in interest.

For this reason, it’s important to think carefully when choosing whether to fix a home loan and how long to fix for.