Pros and cons of fixed rate home loans:

Fixed home loans have an interest rate that is fixed for a set period. At the end of the fixed rate term, the loan will usually switch to a variable rate offered by the lender.

Here are some advantages of fixing your home loan:

  • Makes budgeting easier – Having certainty in knowing what your repayments will be, so you can plan ahead to manage your expenses.
  • You’re not effected by Rate Rises – If interest rates rise above your fixed rate, you will be happy knowing you are paying less than a variable rate.

But there are also some disadvantages to fixing your loan:

  • Rate decreases won’t apply to you – You won’t benefit from a drop in interest rates while on a fixed rate.
  • Limits on extra repayments – Additional loan repayments are often not allowed with fixed rate loans or limited to a low amount or only allowed with a fee being applicable.
  • No redraw access – A redraw facility may not be offered on a fixed rate loan.
  • Break fees – Fixed rate loans may have a break fee, if you decide to change or pay off your loan while on a fixed rate period the lender will charge additional break costs for cancelling your fixed rate loan.

Pros and cons of variable rate home loans:

Interest rate will move with changes to market interest rates. This means the interest rate can rise or fall over the term of your loan. As a result, your repayments will ‘vary’ as the rate changes.

Here are some advantages of a variable rate home loan:

  • You can make extra repayments -Extra repayments are usually allowed at no extra cost, which can save you interest and help you pay off your loan sooner.
  • If rates reduce you will benefit from your rate also reducing and by going so your repayment will also reduce.
  • More features – Variable loans often have additional features such as unlimited redraws on any additional repayments or the ability to set up an offset account.

Here are some disadvantages of a variable rate loan:

  • Your rate can increase – If rates increase your loan will also be impacted by this with your interest rates increase along with your loan repayments.
  • Can make budgeting harder – It can be difficult to budget with certainty as loan repayments can increase when interest rates change.

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