Should You Get a Fixed or Variable Rate Home Loan?

Choosing whether to get a fixed or variable rate home loan is an important financial decision. If you make the wrong one, it could cost you a lot of money. Interest is the single biggest cost on any home loan.

What’s the difference between a fixed and variable rate home loan?

A fixed rate home loan has the interest rate fixed for a specific period. Even if market rates go up or down, your fixed home loan rate and your repayments remain the same. This is great if market interest rates rise, because you’ll be charged less interest.

Fixed rate terms usually range from one to five years, depending on the lender and loan product.

A variable rate home loan on the other hand moves up or down based on market interest rates. If market rates rise, so does your variable home loan rate and repayments. If market rates fall,  so does your variable rate and repayments.

Is now a good time to fix your home loan rate?

Interest rates in Australia are currently at record lows, but with inflation on the rise, there are fears that market rates will be raised in the near future by the Reserve Bank.

Most lenders in the market in Australia have recently raised their fixed rates, which is a sign that they think market rates will rise soon.

It’s important to remember that home loans are long-term financial commitments of 25 or 30 years. If you take out a large home loan, fixing your interest rate can give you peace of mind that you will still be able to afford your repayments even if market rates rise during your fixed rate term.

The table below shows how much difference a 1% rise in variable interest rates would make to the average Australian home loan in New South Wales over 30 years.

Interest rateMonthly RepaymentTotal Interest Payable
2%$2,454$219,554
3%$2,800$343,827

As you can see, total interest over the life of the loan increases by $124,273, and monthly repayments increase by $346.

Can you switch to a fixed rate if you already have a variable rate home loan?

Yes, most lenders will allow you to do this. You can refinance with your current lender or another one. You can use our repayment calculator to work out what your repayments would be.

What is a split rate loan?

A split rate loan has a fixed rate applied to part of the loan amount, and a variable rate to the rest. It’s an option if you want to hedge your bets on market interest rate movements. 

How we can help

If you’re looking to take out a home or investment property loan (or to refinance, our experienced and licensed brokers at Wisebuy Investment Group  can help. We can also help you with your application.

We service a diverse range of clients in the popular Newcastle, Lake Macquarie and Maitland areas. Our brokers work with more than 60 lenders in the Australian market.

Contact us today for an obligation-free chat to find out more.