Fixed and variable rate home loans

Fixed Rate Loan

Fixed rate home loans have an interest rate that is fixed for a set period of time – usually between 1 and 3 years. At the end of the fixed rate term the loan will automatically switch to the standard variable rate offered by the lender – but if you have a good broker on board you won’t need to worry as they will generally have a reminder set in their calendar and ensure to find you a great product before this time comes.

Fixed rate advantages:

  • If interest rates are on the rise you will be happy knowing this change will not affect you.
  • You know what you’re repayments will be for the set time of the fixed rate period so you have the ability to plan ahead with confidence.

Fixed rate disadvantages:

  • If interest rates are dropping you won’t see the benefit if your fixed rate is greater than the variable rate.
  • Additional home loan repayments are normally capped at a low amount.
  • A redraw facility may not be available on a fixed rate loan.
  • There is a break fee payable if you change or pay off your loan before the fixed period ends.

Variable Rate Loan

Variable rate home loans interest rates can rise or fall over life of the loan. As a result of this the repayments will vary as the rate changes take effect.

Variable rate advantages:

  • Extra repayments can save on interest and help you to pay down your loan sooner.
  • Ability for unlimited redraws on any additional repayments.
  • Ability to set up an offset account.
  • Variable loans will not incur any break fees like a fixed rate.

Variable rate disadvantages:

  • It can be difficult to budget with confidence knowing loan repayments can increase when interest rates change.
  • If you aren’t prepared when a rate rise comes into effect, there may be trouble keeping up with repayments.

Loan Splitting

Another option is to ask your broker about a partial fix and partial variable interest loan. A loan split will allow you to manage some of the risks of interest rate rises while still being able to make extra repayments.

There’s no rules to say how you should split the loan, so you can allocate the funds 50/50 or 20/80 – the decision is up to you and how you want the loans structured, alternatively your broker can give you advice on the best way to set up the loan splits.

No one can predict how interest rates will rise or fall so it’s important to work with a broker who will be able to choose a loan solution that is right for you. The loan you choose to accept is a decision that needs to work for you. That means the loan should have the features, flexibility and fees that are the most suited to your needs.


If you would like a free review of your situation and would like to know information about a mortgage brokers services or would like a no obligation free review of whether a fixed rate or variable rate home loan is suitable for you, please don’t hesitate to get in touch with your mortgage broker Gerry today and we can talk further about should there be any questions/queries you may have.