Deciding between a fixed and variable home loan
When you're looking to buy a home, one of the biggest decisions you'll need to make is choosing between a fixed or variable home loan.
Both have their advantages and disadvantages, and it's essential to understand them before making a decision. In this blog post, we'll go over the pros and cons of fixed versus variable home loans to help you make an informed decision.
Fixed Home Loans
A fixed home loan is a type of home loan where the interest rate is fixed for a certain period, usually between one and five years. Here are the pros and cons of fixed home loans:
Pros:
Predictability: The primary advantage of a fixed home loan is that you can plan your finances with certainty. Since the interest rate is fixed, you know exactly how much you'll pay each month, which makes it easier to budget.
Protection: If interest rates rise, you won't be affected since your rate is locked in for a set period. This can give you peace of mind, especially if you're on a tight budget.
Budget-friendly: Fixed-rate loans can be more budget-friendly since you won't have to worry about interest rate fluctuations. This can be especially helpful if you're a first-time homebuyer who's still getting used to the costs associated with owning a home.
Cons:
Lack of flexibility: One of the significant drawbacks of fixed home loans is that they lack flexibility. If you want to pay off your loan early or switch lenders, you may face penalties and fees.
Miss out on lower rates: If interest rates fall, you won't benefit from the lower rates since your rate is fixed.
Limited features: Fixed home loans tend to have limited features compared to variable home loans. This means you won't be able to take advantage of things like offset accounts or redraw facilities.
Variable Home Loans
A variable home loan is a type of home loan where the interest rate fluctuates based on market conditions. Here are the pros and cons of variable home loans:
Pros:
Flexibility: One of the primary advantages of a variable home loan is that it's more flexible than a fixed home loan. You can pay off your loan early or switch lenders without facing penalties or fees.
Lower rates: If interest rates fall, you'll benefit from the lower rates since your rate is variable.
More features: Variable home loans tend to have more features than fixed home loans. This means you can take advantage of things like offset accounts or redraw facilities.
Cons:
Uncertainty: The primary disadvantage of a variable home loan is that the interest rate can fluctuate. This can make it difficult to budget, especially if you're on a tight budget.
Risk: If interest rates rise, your repayments will increase, which can put a strain on your finances.
Higher fees: Variable home loans tend to have higher fees compared to fixed home loans. This means you may need to pay more in fees over the life of your loan.
