Fixed, variable, split – find the right fit for you

0048 BLOG 14 Fixed variable split find the right fit for you

In Australia, there are a number of ways to structure your home loan repayments. Finding the best option may save you time and money on your mortgage. Here is some information to help you choose the repayment structure that works best for you.

Variable rate loans

Variable interest rate loans are all about flexibility. Essentially, with a variable rate loan, the interest rate moves up or down as the market moves. This means your loan repayments may also change month-to-month.

If the interest rate drops, then your repayments may drop as well. However, in the event of an interest rate rise, your repayments could also increase.

Many variable rate loans come with additional features, which can reduce the amount of interest paid over the life of the loan. For example, a variable rate loan with a 100% offset arrangement links your loan account to your savings account. Any funds held in your savings account are offset against the borrowed amount, reducing the interest you have to pay.

Many variable rate loans offer flexibility in terms of increased payments, allowing you to pay off your loan faster if you have additional funds available.

Fixed rate loans

A fixed rate loan is one where the interest rate is fixed for a limited period, and immune from any movements in the market. The most popular choices are three and five-year fixed interest loans, although options ranging from one to ten years are available.

Fixed rate loans allow you to make steady, regular repayments. They’re great for borrowers on strict budgets, or if you’re entering into a mortgage at a time when interest rates are likely to rise.

In the event of a drop in interest rates, being locked into a fixed rate may mean your repayments are higher than they otherwise would be. It’s also worth noting that breaking a fixed rate loan can potentially cost thousands of dollars in fees.

Additionally, many banks will charge you a fee for making extra payments towards the loan during the period it has been fixed.

Split rate loans – a foot in each camp

A split rate loan is when you break your mortgage into two loans – one with a fixed rate and one with a variable rate.

It's something of an 'each-way bet'. A split loan offers borrowers protection from rate rises (with the fixed portion of the loan) alongside the advantage of rate drops (with the variable portion of the loan).

Most banks will allow you to split your loans from the outset, without having to pay for two separate loan applications.

Choosing the right kind of loan depends on your personal situation, earning capacity and long-term goals for your property. Speaking with a mortgage broker can help you to figure out the best way forward, and could help you save money along the way.

We thought you might also like...

93 SoundChoices

Sound choices: Your essential guide to built-in home audio

Many people are opting for built-in home audio systems. But how do you know if it’s right for your home?
Read More >
0026 BLOG 36 The family factor should you buy a home with a loved one

The family factor: Should you buy property with a loved one?

Purchasing a property with a loved one can be a great way to enter to the property market, but taking on such a large financial....
Read More >
0027 BLOG 35 The essential Guide to first home owner grants

The essential guide to first home buyer grants

When it comes to buying their first home, knowing what government assistance is available can make all the difference.
Read More >
0012 BLOG 50 Why brokers hold the keys to getting your foot in...

Why brokers hold the keys to getting your foot in the property door

Getting a foot in the door of your dream home might be getting harder, but talking to a mortgage broker could get you the keys....
Read More >