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The pros and cons for fixed rates vs variable rates loans

When it comes to choosing a home loan, one of the most important decisions you'll make is whether to opt for a fixed rate or variable rate loan. Both options have their advantages and disadvantages, and it's important to weigh them up carefully before deciding. Let’s explore the pros and cons of fixed rate vs variable rate home loans to help you make an informed choice.

Fixed Rate Home Loans

A fixed-rate home loan is a type of loan where the interest rate remains the same for a set period of time, typically between one and five years. During this time, your repayments will remain the same regardless of any changes to the official cash rate or lender's interest rates. Here are some of the pros and cons of choosing a fixed-rate home loan.


1. Certainty: One of the main benefits of a fixed-rate home loan is that you'll have certainty over your repayments. Knowing exactly how much you need to pay each month can be helpful for budgeting purposes, particularly if you have a fixed income.

2. Protection from rate hikes: If interest rates rise during your fixed-rate period, your repayments will remain the same, meaning you won't be affected by any increases.

3. Planning ahead: With a fixed-rate home loan, you can plan ahead and know exactly how much you'll be paying each month, which can be helpful for those who like to have a clear view of their finances.


1. Less flexibility: Fixed-rate home loans tend to be less flexible than variable-rate loans. If you want to make extra repayments or pay off your loan early, you may be charged fees or be limited in how much you can repay.

2. Higher interest rates: Fixed-rate loans tend to have higher interest rates than variable-rate loans, as lenders are charging you for the certainty of knowing what your repayments will be.

3. Risk of missing out on rate drops: If interest rates drop during your fixed rate period, you won't benefit from any savings, as your repayments will remain the same.

Variable Rate Home Loans

A variable-rate home loan is a type of loan where the interest rate can go up or down at any time. Your repayments will fluctuate based on changes to the official cash rate or your lender's interest rates. Here are some of the pros and cons of choosing a variable-rate home loan.


1. Flexibility: Variable-rate home loans tend to be more flexible than fixed-rate loans. You can usually make extra repayments or pay off your loan early without incurring any fees, giving you more control over your finances.

2. Lower interest rates: Variable-rate loans tend to have lower interest rates than fixed-rate loans, as lenders are not providing the same level of certainty.

3. Potential savings: If interest rates drop during your variable rate period, your repayments will decrease, meaning you could potentially save money on your loan.


1. Uncertainty: The main disadvantage of a variable rate home loan is the uncertainty over your repayments. Your repayments could increase at any time if interest rates rise, which can make budgeting more challenging.

2. Risk of overpaying: If you're not careful, you could end up overpaying on your loan if you make extra repayments when interest rates are low, only for them to increase shortly afterward.

3. Interest rate fluctuations: Variable-rate home loans are subject to interest rate fluctuations, which can make it harder to plan ahead and can be stressful for borrowers who prefer stability.

Which Option Is Right for You?

Choosing between a fixed rate and variable rate home loan ultimately depends on your personal circumstances, financial goals, and risk appetite. If you want certainty over your repayments and are willing to pay a higher interest rate for that certainty, a fixed-rate home loan may be the right choice for you. On the other hand, if you're comfortable with some uncertainty and want the potential to save money on your loan, a variable-rate home loan may be a better fit.

It's important to do your research and compare different home loan options from a range of lenders to find the best deal for you. Speak to a mortgage broker or financial adviser to get expert advice on which type of loan might suit your needs best.

Both fixed-rate and variable-rate home loans have their advantages and disadvantages. It's important to carefully consider your options and choose the loan that best aligns with your financial goals and personal circumstances.

Sam Wilks is not a financial adviser, he has been in the Real estate industry for 23 years and has a range of real estate experiences that he shares with others so they can be better educated in making the decision right for them.

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