Home Loans – fixed vs variable – what is best for you?
If you are starting to look around for a home loan you might be deciding whether to choose a fixed or variable loan. Here are the benefits for each option.
Fixed rate home loans
Fixed interest rates allow you to lock in an interest rate for an agreed period (usually 1-5 years). For the fixed rate period you select, your interest rate does not change and your regular repayments remain the same. At the end of any fixed rate period you can have your loan convert to a variable interest rate or select another fixed rate period.
The benefits are:
• You will know how much your loan repayments will be for a fixed period, regardless of market interest rate changes
• You will be protected against interest rate rises
• You can pick the time period to suit you – fixed terms are available from 1 to 5 years
We also provide the ability to make extra payments up to $25,000 per fixed year and the flexibility of redrawing additional repayments on fixed rate home loans*.
Fixed interest rates can safeguard against interest rate increases but also mean you will miss out if interest rates decrease during your fixed rate term. And if you want to repay all or part of your loan during your fixed rate period you may have to pay break costs.
Variable rate home loans
Variable interest rates are influenced by market conditions and during the term of a loan can increase or decrease many times over. If interest rates increase so will the regular repayments you must make. If interest rates decrease your regular repayments will also decrease.
The benefits are:
• Your home loan repayments will fall when interest rates fall
• You have the opportunity to reduce your home loan balance faster
• It can be very flexible and allow unlimited additional repayments and loan redraw
If you like flexibility in your loan and the ability to redraw, then a variable rate home loan might be best for you. However, it can be risky to take out a variable rate home loan if you have borrowed at or near your repayment capacity and interest rates do rise.
The question about fixed vs variable interest rates is not always an easy one with the experts even having differing opinions on when and when not to fix. To get the best of both worlds you could consider splitting your loan into two; selecting a fixed rate term for one loan and a variable interest rate for the other. That way you get the security of knowing that your repayments won’t change on the fixed rate portion and flexibility to repay extra and take advantage of any interest rate decreases on the variable rate loan.
How to choose
When choosing whether to select a variable or fixed interest rate for your home loan you need to decide whether you want the security of knowing your repayments will not change or the flexibility of a variable rate loan, or alternatively a bit of both with a split loan.
If you have any questions about our fixed rate, variable or split home loans feel free to leave a comment.
^Scott – State Manager, SA
*Terms, conditions, fees and charges, and lending criteria apply to all loans. Full details are available at the time of application or by contacting us. All loans are provided by Beyond Bank Australia is a trading name of Community CPS Australia Ltd ABN 15 087 651 143 AFSL/Australian Credit License 237 856. Interest rates are subject to change without notice.