Pros and Cons of Fixed Rates vs Variable Rates



We are passionate about educating and helping our clients own their own home sooner and continue their financial journey to wealth creation through property and financial investments.



This has been a hot topic for the last year and continues to make headlines. The current story everyone is talking about now is when will the variable interest rates rise now that major banks have increased fixed rate options for new customers over recent months?


But is it time to fix your home loan interest rates now? Or has the opportunity passed now that major banks are increasing their fixed rate options, based on their outlook that rates will rise very soon?


Here we discuss the pros and cons of fixing home loan interest rates and why it might be good for some, and not for others.


We are here to help, please contact us today to discuss your personal situation and whether a fixed or variable loan is right for you.



Pros + and Cons - of Fixed vs Variable



Fixed Interest Rate Option:

+ You know the exact loan repayment amount each month making budgeting easier.

+ You are protected if interest rates were to rise above your fixed rate, thus saving you interest.

- You are unable to take advantage of lower interest rates on your home loan even if the bank reduces both fixed and variable interest rates.

- You are unable to refinance to another bank until the fixed term contract has ended, or need to pay the "Break" fee costing thousands to cancel your fixed term contract.

- There are limits on how much additional repayments you can make per year, for most banks the cap is $20,000 per annum above the minimum repayment.

- Some banks do not allow you to Re-draw additional money that has been paid over and above the minimum loan repayment.

- Most banks don't allow Offset accounts linked to fixed loans, and if they do, make sure you understand the details of this feature as it may be different compared to "traditional" offset accounts.



Variable Interest Rate Option:

+ You can take advantage of reducing your home loan interest rate if market rates reduce and your bank passes them, as we saw during the height of the pandemic.

+ There are no limits on additional loan repayments you make toward your home loan.

+ You can take advantage of additional loan features such as Re-drawing additional money paid over and above the minimum repayments, and linking Offset accounts to reduce interest costs.

+ You are able to refinance your home loan at anytime without being "locked in" to fixed term contracts.

+ You can split loan portions between fixed and variable rates to take advantage of both fixed and variable rates.

- Your interest rate will increase if your bank increases their standard variable rates and passes them onto you.

- Fixed interest rate options could be lower now to save on interest.



At Wealth Psychology, we specialise in financial planning, home loans and tax accounting. We can show you the path to buying your first home, next investment property and maximising your assets.
We help our clients take the next step in buying their first investment property, as well as formulate a plan to continue building property portfolios. As credit specialists, we have access to multiple lending options to fit your personal needs.
Contact us today via our website contact page or Facebook page to find out how we can help you.
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