While most borrowers opt for a variable rate home loan, many prefer the security of a fixed rate. So what is a fixed rate? A fixed rate is where the interest payable on a loan does not fluctuate for a period of time. Your repayments are locked in for a period of time, typically for between one and five years. The loan reverts to a variable rate home loan once the fixed rate term ends.
There are several advantages and disadvantages of having a fixed rate to your home loan.
Advantages of a fixed rate home loan
- You know exactly how much you need to pay towards your home loan, making budgeting simpler and easier.
- You’re protected against interest rate rises for a period of time. So this means you know you can make the loan repayments.
Disadvantages of a fixed rate home loan
- If the interest rate goes down, you will not be able to benefit from lower rates.
- A fixed rate home loan doesn’t have the flexibility options that a variable rate has. Most lenders will not allow you to make additional repayments, or add a redraw facility.
- If you want to add extra features, or you decide to break the fixed rate contract before the term ends, or you may need to refinance you home loan. You may need to pay a substantial break fee.
How to find the best home loan fixed rates
Some home loan lenders allow you to have a split-loan feature where you can benefit from the locked-in interest of a fixed rate, and the flexibility of a variable rate. The borrower has the ability to divide the home loan into two portions. It could be 60% variable and 40% fixed, or even divide it equally 50/50.
On one part of your loan the interest rate will remain fixed, while on the other part a variable rate will apply so you can benefit if the rate goes down. This also gives you the flexibility to make extra repayments or add a redraw offset account.
A split loan feature is just one of the options on how to find for the best home loan fixed rates. If you’re unsure whether you should fix your home loan, or split it, you can book an appointment with one of our lending specialists.