Repayments: Fixed or Variable?

Back in 2007, a large percentage of home loans (approximately 35%) were fixed.

Times have changed!

Today, Rate Detective are finding close to 90% of home loans are in fact settled as variable.

Determining the structure of your loan repayments is a very personal decision. However, if you’re capable of affording the repayments should rates rise in the future it’s a good idea to consider variable loans given interest rates are so low.

Over the last 50 years, home owners on variable mortgages have paid less interest and managed to repay their home loans faster.  Why - because the banks charge a premium for fixing your rate.

For example, the best variable mortgage products on offer are over 200 basis points lower than fixed ones.

Additional disadvantages of a fixed mortgage include;
1)    Restrictions on the amount of additional payments you can make each year.
2)    Most fixed products don’t have added features such a an offset account.  

So, with this information in mind a variable rate may in fact save you money.

If you are struggling to make your mortgage payments from month the month, (a lot of Australians are in this boat), then it’s a wise idea to consider fixing your rate. This provide some security should interest rates go up in the future.

If you’re worried about your financial situation should rates go up, but still want some flexibility, consider a split loan. A split loan is whereby you fix a portion of your loan and leave the rest as variable. Split loans provide the added advantage of early repayments, redraw and mortgage offset without the need to expose the entire loan to fluctuations in interest rates.  How you split the loan is up to you but a 50/50 or 60/40 split is most common.

There's always options. Happy Savings!