Should You Fix or Keep Your Home Loan Rate Variable?

 

Fixed or Variable: A Guide for Australian Borrowers

 
 

Deciding whether to fix your home loan rate or opt for a variable rate can feel daunting. With the Australian lending landscape constantly evolving, making an informed choice is crucial. At the time of writing, fixed rates are as low as 5.55%, while the average variable rate sits at 6.55% (source: Canstar). This presents an excellent opportunity for many borrowers to reconsider their options.

In this post, we’ll explore the pros and cons of fixed and variable interest rates and when a split loan might make sense. Plus, we’ll share how Sandcastle Finance can help you find the best fit for your financial future.

Understanding Fixed-Rate Home Loans

A fixed-rate home loan locks in your interest rate for a set period, typically between one and five years. During this time, your repayments remain consistent regardless of market fluctuations.

Advantages of Fixed Rates

  1. Predictable Repayments
    With fixed repayments, you gain certainty, making it easier to manage household budgets and long-term financial plans.

  2. Protection from Rate Increases
    Locking in a fixed rate shields you from potential rate hikes during your fixed term.

  3. Current Market Opportunity
    Right now, lenders are offering fixed rates as low as 5.55%, which could translate into immediate savings compared to the average variable rate.

Considerations

  • Limited Flexibility: Fixed loans often restrict extra repayments and may lack features like offset accounts.

  • Break Costs: Exiting a fixed loan early can result in high penalties.

  • Missed Opportunities: If variable rates drop, you won’t benefit from the reduced repayments.

Exploring Variable-Rate Home Loans

Variable rates fluctuate with market conditions and are often tied to the Reserve Bank of Australia's (RBA) cash rate changes.

Advantages of Variable Rates

  1. Flexibility
    Variable loans often allow extra repayments, offset accounts, and redraw facilities, helping you reduce interest costs.

  2. Potential for Lower Repayments
    If interest rates decrease, your repayments may reduce accordingly.

Considerations

  • Repayment Uncertainty: Rate increases could lead to higher repayments.

  • Market Sensitivity: Variable rates are influenced by economic changes, which may affect your financial stability.

Finding the Balance: Split Loans

A split loan offers the best of both worlds. Part of your loan is fixed, providing stability, while the remainder is variable, giving you flexibility and potential savings if rates fall.

For many Australians, this hybrid approach balances financial security and adaptability.

How to Decide Between Fixed and Variable Rates

When deciding, consider the following:

  1. Your Financial Goals
    Do you prefer stability and consistent repayments, or do you value flexibility and the ability to make additional payments?

  2. Risk Tolerance
    Are you comfortable with the possibility of rate increases, or would you rather lock in your repayments?

  3. Current Market Conditions
    With fixed rates currently as low as 5.55%, locking in a fixed rate now could save you thousands over the next few years, particularly as variable rates are not expected to drop until late 2025. (Note: lenders change their published rates all the time. Please check with us to make sure you have the most up-to-date pricing for your home loan)

Sandcastle Finance Can Help You Make the Right Choice

At Sandcastle Finance, we understand that every borrower is different. That’s why we’re here to guide you through the decision-making process, ensuring your loan aligns with your lifestyle and financial goals.

Our team is ready to explore the best fixed, variable, or split options with you.

There’s No One-Size-Fits-All Answer

Choosing between a fixed or variable rate depends on your financial goals, risk tolerance, and the current market environment.

Now might be the ideal time to secure the stability of a fixed rate.

👉 Take Action Today: Book a call today with Sandcastle Finance to see how we can help you save on your home loan.

 

Camilla Bowhill
Finance Broker
Ph: 0403 852 733
Email: camilla@sandcastlefinance.com.au

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Michelle Russell
Mortgage Broker, MFAA
Ph: 0493 994 160
Email: michelle@sandcastlefinance.com.au

Sally Prowse