The Pros and Cons of Fixed and Variable Rate Mortgages


Buying a new home can be confusing, from choosing the right property to deciding on the best loan package to suit your financial situation. 

Fixed and variable rate mortgages each offer their own unique advantages. By carefully assessing your options and making an informed choice, you can determine the most effective pathway. This can help you achieve your financial goals.

So what are the differences between fixed and variable rate mortgage and which loan should you choose? Here’s everything you need to know. 

Fixed rate loan pros

Above all, fixed rate loans offer stability. This is their greatest advantage.

A fixed rate home loan is what happens when you lock in your interest rate for a predetermined period of time, often somewhere between one and five years. 

During your fixed rate period, your minimum loan repayments will stay the same, even if the RBA changes interest rates on a national level.

Fixed rate loans allow mortgage holders to set weekly, fortnightly, or monthly repayments while planning confidently for the future without fear of financial pressure from interest rate rises. 

Fixed rate loan cons

Despite these benefits, fixed rate loans also have a few drawbacks.

In exchange for greater stability, these loans lack flexibility. You may be subject to strict rules around extra repayments, and you won’t be able to redraw any additional repayments you do make. 

Fixed rate loan products do not usually include an offset account and may fail to offer additional loan features. In addition to this, your repayments won’t fall even if the national interest rate does.

Variable rate loan pros

Conversely, variable rate loans are best known for their flexibility.

A variable rate home loan means that your interest rate will remain fluid, subject to fluctuation as the RBA implements national interest rate changes – rises or falls. 

With a variable loan, your minimum loan repayments may change over time as national conditions change too. This could mean that you end up paying more or less in weekly or monthly increments.

Variable rate loans generally offer a range of extra features to support home owners. You may have access to unlimited extra repayments and even a redraw facility, allowing you to redraw any extra money paid towards your loan.

Variable rate loan cons

Like fixed rate loans, variable home loans also have some disadvantages.

While a variable loan can provide you with flexibility, you won’t have the luxury of stability. If interest rates fall, you’ll benefit from lower repayments. But if they rise, you’ll need to pay more.

Variable rate home loans can be difficult to budget around. If your budget is restricted or challenging to navigate, these loans could cause financial planning headaches.

Ultimately, the best loan option for you will depend on your circumstances and your financial goals. If you’re feeling unsure about which pathway to choose, it may be helpful to speak with a professional.

Still deciding between home loan options? Contact the best mortgage broker Melbourne has to offer now.