Variable versus Fixed Rate Home Loans – How to Decide

It’s one of the biggest questions when seeking finance for a new home – do you fix or not? With interest rates at an all time low, it’s easy to see why many people are rushing to fix the interest rate of their home loan over a set period. However what people don’t often realise is that a variable home loan offers the flexibility that people prefer, and in many cases, require.

Our team at Dixon Homes can provide advice on some avenues to secure finance for your new home, and in this post we explain the major differences between fixed and variable home loans to help you decide which option is best for your situation.

Fixed Interest Rates

Fixed interest rates are ‘locked in’ for the duration of the term – usually between 1-5 years. This means that an interest rate of 5.59 per cent will remain the same for the entire period after which they can choose to renew another fixed period at the interest rate at that time, or choose to change to a variable rate. For many when rates rise, being on a fixed interest rate can offer the best peace of mind.

Many people choose to lock in fixed interest rates when rates are low, but some of the things to consider with fixed interest rates are that it can be frustrating when interest rates fall further and you cannot benefit. Another concern for some people is that fixed interest rates do not allow the flexibility to make extra payments without attracting a fee. Breaking a fixed term can also be costly.

Variable Interest Rates

Variable interest rates on the other hand are more flexible allowing you to make extra repayments, and usually come with lower fees on entry than fixed rates. Any extra payments can also be redrawn if extra cash is needed. Other flexibilities including refinancing the loan are the ability to refinance if needed – even for something as simple as renovations. They also are the best option if you are planning on selling or buying in the near future a variable interest rate loan makes the most

sense to avoid costly exit fees.

The downside of variable interest rates include that the interest rates can rise, and how much you will have to make in repayments will change for better or worse.

According to data from the ABS, around 80 per cent o-f home loans in Australia are variable home loans, and this suggests that even though a variable rate may sound daunting, they offer the flexibility than many need from their home loans.

Dixon Homes support has a team of financial specialists who can guide you through the process of securing finance for your new home. To find out more about building your future with Australia’s most recognisable new home builder call us today on 1300 10 10 10.