When searching for your home loan, you can choose from a fixed or a variable rate home loan. Different loan types will suit different borrowers depending on their loan purpose and other personal preferences.
A fixed rate home loan provides borrowers with certainty by fixing their interest rate for a certain period of time. The benefit of doing so is that it can provide the borrower the predictability they need with their repayment amounts. This type of home loan will suit those who can or would like to forecast their financial situation for the next few years. However, it is important to note that if you would like to revert to a variable rate before the fixed period ends, there are break costs that will apply to you. These costs are unascertainable and will depend on how many months you have left till your fixed term ends.
A variable rate home loan will have an interest rate that will vary depending on market rate changes or other factors at the discretion of your lender. Those who choose a variable rate home loan can benefit from other desirable loan features such as a redraw facility, offset account, and flexible payment options. This home loan type suits those who would like to take advantage of rate falls in the market and would like some form of flexibility with how their home loan works, including having unlimited repayment amounts.
To get the best of both worlds, you can also choose to split your home loan. This can offset a certain amount of your home loan from market rate fluctuations.