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  • Which home loan is right for you

    Which home loan is right for you

    It can be difficult to know what loan structure is right for you. Here's a rundown of various loan types.

    Fixed rate

    Planning: A fixed interest rate allows you to plan for the future with the knowledge that you will pay the same amount each month for the length of the fixed rate period, even if interest rates rise. In terms of career, your lifestyle decisions and savings plan, knowing what you’re going to be forking out can be a big comfort. However, you do need to be mindful of the restrictions of fixed rate loans.

    Fees: You need to be aware that if you want to make prepayments larger than $30,000 with your RAMS home loan, you may be required to pay break costs, which can be considerable.

    Rate drops: Remember while fixed rates protect you when rates rise, if you have a fixed rate and rates drop, you miss out on the advantage of that rate movement.

    Variable rate

    Extra repayments: One benefit of having a variable interest rate is being able to take advantage of more prosperous times in your life to make a financial dent in your mortgage.

    Sudden windfalls, inheritances or tax returns can be funnelled into the mortgage, allowing you to make greater headway than with a fixed rate mortgage. When interest rates drop, it can make a big difference in your household’s monthly budget if all or part of your mortgage rate is variable – especially if you maintain the same repayment amount even after the reduction is introduced.

    Rate rises: You also need to be prepared if the market changes and interest rates start to increase. It makes good financial sense to plan and budget for potential interest rate rises and try to get ahead on home loan repayments whilst rates are lower.

    Split the difference

    Another option might be a part fixed, part variable loan structure to leverage the advantages of each. In splitting, the percentage allocated to a variable interest rate should be based on what you’d comfortably be able to afford should interest rates rise. Secondly, consider your plans for the next three to five years. Think about the amount you wish to pay back in this time frame (in addition to the minimum repayments of your mortgage) and make this amount variable.

    Offset accounts

    An offset account is attached to your home loan and works just like a regular bank account, as you can deposit your salary into it and withdraw money for everyday purchases using a debit card, such as the RAMS’ Tap and Pay  eftpos card. An offset account is offset against your home loan balance, reducing the amount you pay interest on. Let’s say you have a $400,000 home loan balance and $50,000 in an offset account, in this instance you would only pay interest on $350,000. Many home owners opt for an offset account over a savings account, as interest rates attached to home loans are generally higher.


    Things you should know: Credit criteria, fees and charges apply. 

    *Not available to companies or trusts.

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    About the author

    • Raymond

      Raymond A Ram is the RAMbassador for RAMS Financial Group. Raymond works with the RAMS team to bring simple, helpful and expert information on home loans and savings accounts to life with his down to earth and cheeky personality. He enjoys seeing everyday Australians turn their dreams of saving for a goal or getting into a home a reality. 

      Growing up in Goulburn, NSW, Raymond was brought up with good old-fashioned Aussie values of hard work and a fair go. It soon became apparent that Raymond wasn't content for the conventional path of grazing, producing the very best wool, and finding a nice sheep to settle down with. So it wasn't long before his passion for performing and his talent as a likeable larrikin shone through - landing him a few roles such as 'RAMlet'. He was even tipped to play RAM-bo at one point but chose to become star of the small screen instead as RAMbassador for RAMS. He now finds this role so much more rewarding.

      Contact your local RAMS Home Loan Centre about your home loan options.

      Raymond A Ram

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  • Disclaimer:

    The information here is of a general nature only and is not intended to constitute financial or tax advice. You should consult your professional adviser, accountant or taxation expert for advice specific to your personal circumstances.

    The views and opinions expressed in this article are those of the author alone and do not necessarily represent the views or opinions of RAMS Financial Group Pty Ltd ABN 30 105 207 538 (RAMS),  Westpac Banking Corporation ABN 33 007 457 141 (Westpac) or their related bodies corporate. This article is strictly for information purposes only and neither RAMS, Westpac nor any of their related bodies corporate make any representation as to the accuracy or completeness of the information in this article or endorse the views expressed in it.