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  • Fixed vs variable interest rates - what's the best option?

    A fixed rate home loan means the interest rate stays the same for a set period of time. You’ll have the security of knowing what the repayments are during the fixed rate period, and can budget accordingly.

    Conversely, with a variable rate loan, the interest rate can change from time to time, which in turn impacts your repayments. While interest rates often move in line with the Reserve Bank’s movement of the cash rate, a lender can change its variable interest rates at any time. 

    Then again, you might want a combination of both and split your home loan to make it part fixed and part variable.

    Fixed rate home loans – the positives

     

    • Most fixed rate loans allow limited extra repayments during the fixed rate period 
    • Most fixed rate loans offer redraw facilities
    • Borrowers know what repayments will be for the duration of the fixed rate period, so can budget accordingly
    • Fixed rate loans are not affected by the interest rate market during the fixed rate period 
    • There are more flexible fixed rate products available in today’s lending market than before

     

    Fixed rate home loans - the negatives

     

    • Fixed rate home loans are more rigid in their terms and conditions than variable rate loans
    • Lenders usually charge fixed rate break costs if you prepay more than a predetermined threshold during the fixed rate period. These break costs can be considerable. 
    • Be aware that while you might be ‘in front’ when fixed interest rates may be lower than variable rates, however there may be a time when your fixed rate is higher than the variable rate dependant on interest rate fluctuations.

     

    Variable rate home loans - the positives

     

    • Variable rate home loans generally give the borrower more flexibility ( greater choice with payment frequency and amount, and possibly other features such as a repayment holiday option, depending on the lender and individual product features)
    • Variable rate home loans can include lots of extra features generally not offered by fixed rate loans, including low introductory rates for an initial period of the loan (depending on the lender and individual products)
    • When market interest rates are low, mortgage repayments will usually reflect the lower rates of a variable rate loan.

     

    Variable rate home loans - the negatives

     

    • As variable rate loans are subject to interest rate fluctuations, monthly repayments can change with each shift making budgeting less exact 

     

    Like to discuss further? If you would like to find out more about the range of fixed and variable rate home loan options available at RAMS, simply:

    Make an appointment to talk to a RAMS consultant today

    Have us call you.