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The age-old question for so many home loan borrowers – to fix or not to fix? There are always a number of factors to consider when it comes time to shop around for a new home loan rate, and one of the biggest questions often tends to be whether it’s worth fixing your home loan with a locked-in rate for a set amount of time, or opting for the more traditional variable home loan rate. 

With record low interest rates on home loans across the board in 2021, it’s often worth considering whether fixing your home loan rate, or taking the variable route is the better option.  

However, which option is the best one for you? The answer can depend on your individual circumstances, your financial and investment goals, and also what future outcomes you’re expecting from the Australian property market. If you’re having trouble deciding, feel free to reach out to our on-hand Loan Specialists today to find out more! 

Here’s a quick overview of the major pros and cons to either decision – and how to decide which one is right for your circumstances: 

Fixed-rate home loans: 

The pros: 

  • Competitive low rates: fixed rate home loans can often have historically lower interest rates than similar variable rate home loans, so you can count on saving more in the long run. 
  • Certainty: the first, and often biggest benefit with a fixed-rate home loan is that it’s, well, fixed! Your home loan lender will not change your interest rate in the time period you’ve agreed. There won’t be any sudden surprises or surges in your payments, and you’ll know exactly what to expect each month.  
  • Peace of mind: since the rate you’ve agreed to is set in stone for the fixed period, you’ll know your exact monthly repayment amounts and this won’t change. If you experience any change in your financial circumstances and find yourself struggling to budget, you can count on this fixed cost not suddenly changing. 

The cons: 

  • Fixed means fixed: one of the main potential drawbacks of any fixed rate loan, is that it’s essentially a bet that overall interest rates won’t go down further over the fixed period. If rates do drop, then you could be locked into a rate that has become seen as “uncompetitive”. That being said, with interest rates at all-time lows, capacity for both the Reserve Bank and financial institutions to lower rates further could be quite limited. 
  • Less flexibility: another potential downside is that in many cases, a fixed rate home loan is, by definition, less flexible than a variable rate loan. For example, some fixed rate home loans might not include features like an offset account, the ability to make additional repayments, or a limit to any loan splits.  
  • Changes are subject to break fees: by ‘fixing’ your home loan rate for an agreed amount of time, you’re also locked-in to that rate for that period. Should you choose to break the fixed agreement (for any number of reasons), you could be subject to additional costs and break fees. Break fees are typically calculated based on the home loan lender’s wholesale funding rate, and could potentially amount to thousands of dollars that could have been avoided. 

Variable-rate home loans: 

The pros: 

  • Popularity: historically speaking, variable-rate home loans have traditionally been a more popular option for Australian borrowers. The wide range of variable rate home loans available on the financial market means there is potentially a good fit for everyone.  
  • Low overall costs: another thing to consider is that most variable home loans tend to feature overall lower interest rates (especially the comparison rate), and lower fees.  
  • Flexibility: one of the greatest perks of a variable home loan is that it’s flexible by nature. Want an offset account? Want a redraw? Want card access? Want to split your loan? Many additional features that come with a variable home loan option can prove useful.  

The cons: 

  • You’re not hedged against the market: one of the biggest drawbacks with variable rate home loans is that they’re subject to market-influenced rate changes – one year you could be paying $X per month, and the next you could be paying $Y per month. Changes from the Reserve Bank, property market movements, economic cycles and financial competitor landscape can all factor into these changes. 
  • When Reserve Bank rates move, so does yours: the interest on a variable home loan is largely heavily reliant on when the Reserve Bank announces changes to its cash rate, and how your lender responds to those changes. Rates are currently low for now, so it’s unlikely they’ll lower drastically further – but there’s nothing to stop those rates climbing again either. 



This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.