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Variable rate mortgages are the most popular home loans in Australia, however, fixed-rate loans still make up a sizeable chunk of the market. There’s no definite answer about which type is better. It will come down to your needs, financial situation and also the economic climate and property market.
We look at both sides so you can decide if a fixed rate or variable interest rate is better for you and if there is another option.
Fixed rate home loans have an interest rate which remains constant or fixed for an agreed period of time, usually up to 5 years, though some Lenders may do a fixed rate for up to 10 years. Generally, a fixed rate may be higher than the variable rate available so it’s best to weigh up both the advantages and disadvantages.
Pros
Cons
While fixed rates stay static, variable rates fluctuate, often rising and falling in line with the market determined by the RBA (Royal Bank of Australia). Variable rates are often lower than fixed rates, however, a variable rate has its own pros and cons.
Pros
Cons
There is a third option which gives you the best of both. A Split Loan allows you to make a portion of your home loan fixed, and a portion variable. You can select the percentage of your loan that you want fixed, and the remaining portion will be variable.
It’s extremely difficult to predict which option will benefit you most, as RateCity proved with a look back at the 90s and 00s:
“Fixing in October 2005 would have saved borrowers 15%, or around $12,200 compared to variable over the following three years. Fixing a home loan rate in September 1991 would have cost a borrower an extra 30%, or $29,800, over the next three years.”
Understanding fixed and variable costs and how they will benefit you personally will help you in your search for a great home loan that will work for you for years to come. You must ensure you can pay your mortgage even if interest rates increase, as fixed rates do not last forever, and variable rates can fluctuate up and down. If you are still wondering which is best for you, or want to learn more about Split Home Loans, speak to one of our Lending Specialists today.
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of buying a home, you can contact us for the best options when it comes to your mortgage. We can also tell you about alternative ways of getting into the market with a smaller deposit, like guarantor and family pledge loans. You can use our calculators to find what’s the best loan for you.