How do I decide between a fixed, variable or split interest loan?

Unsure about whether to lock down your interest rate for a period with a fixed rate home loan, or take your chances with a variable rate home loan? It’s a decision everyone faces – from first-home buyers right through to investors - at various points in a home loan lifecycle. 

The choice can cause anxiety and confusion for some people because there’s no one-size-fits-all answer as to which option is better, and it can be hard to predict interest rate movements.

Whether to go fixed or variable will depend on your unique circumstances.

That’s one of the many reasons why many buyers turn to a Mortgage Broker, they have tried-and-true methods designed to help you understand how different loan types and interest rate changes can impact your plans and priorities.

How can a Mortgage Broker help you pick between fixed or variable?

The answer to this question may depend on your requirements and objectives which you should establish up front with your Mortgage Broker.

One of the first questions is, what’s more important to you: the stability of knowing your repayments are going to stay the same? Or the flexibility to make unlimited repayments with no penalty?

If you want to have a loan that is fully flexible where you can make unlimited extra repayments with no penalty, a fixed rate may not be the most suitable option because you are usually limited with the extra repayments you can make.

If extra features like redraw facilities and offset accounts are important to you, that may also weigh into your loan structuring choice.

Your decision needs to work for you

Fixed rate loans provide confidence that rate changes won’t affect you – but that works both ways. You won’t pay more if rates rise but you won’t benefit if rates drop. Certainty may be your highest priority if you have a fixed budget.

Variable rate home loans come with less certainty but generally more freedom to pay off your loan faster. Being open to the changes in interest rates often allows you to access loans with more flexible and attractive features.

Variable rate loans may make it easier if you’re thinking about selling your home soon, or want to switch loans if you find a better deal, because fixed-rate home loans often have penalty fees for those wanting to get out early.

Best of both worlds?

Splitting your home loan usually gives you some of the benefits of both a fixed and a variable loan, which may make it an attractive third option to consider. There’s usually no limit on how you split your loan, provided that the relevant lender offers this option.

One of the reasons to split your home loan is to hedge your bets a bit. It gives you peace of mind that a certain portion of your loan is not going to have any variation. As well as the variable component where you can make unlimited extra repayments, access offset and redraw facilities.

There are a lot of things to consider. It is always recommended you read any loan product’s fine-print carefully if making financial product decisions yourself. Alternatively, find a reputable, accredited and trustworthy Mortgage Broker to help you navigate the complex home lending market.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.