Fixed-rate home loans: Who it’s for?

This cash-flow certainty can make budgeting considerably easier, and help you to avoid any spikes in interest rates. 

The downside is if your lender cuts rates, you'll miss out on these savings. 

It's an intriguing argument on both sides, so how can you know if a fixed-rate loan suits you?

Below we've outlined the types of borrowers who may benefit from the security of a fixed rate, while also offering some alternatives.

A fixed-rate home loan may be the better choice for...

First home buyers: 

If you're looking at buying your first home, you'll no doubt understand the massive financial burden you're about to take on.

It can be difficult to adjust to making the repayments on your loan, especially if the amounts are fluctuating in the first years of borrowing. 

A fixed-rate gives you the peace of mind that you'll be paying an exact value, each month, for the period of the fix. 

As a result, your transition into being a homeowner with a mortgage can be a far less jarring experience. 

Big expense savers: 

If you're saving up for something in the near future that you know will be pricey - like an overseas holiday or a car - you'll likely be funnelling as much of your income as possible to pay for that. 

A fixed-rate home loan affords you the knowledge as to whether you can afford this purchase and subsequently set money aside for it. 

If your repayments were to increase under a variable rate, your three-week luxury tour of Italian vineyards could become a backpacking trip before you know it. 

Fixed repayments give you the security to budget for a big expense, without the fear of having less disposable income due to rising rates. 

Self-employed: 

When we think of self-employed, we usually think of business owners. However, the label of 'self-employed' also includes contractors, freelancers and entrepreneurs. 

It can be much more difficult for these people to acquire a home loan and then to maintain repayments if they're not receiving a steady paycheck or are operating at a loss. 

Hence, the benefits of fixed repayments for these individuals become very attractive. 

It's stressful to not know how much you're getting paid this week. Knowing exactly how much your home loan repayment will be help to minimise some of this financial stress. 

Tight budgeters:

If you don't have much disposable income, you know that you have to make every dollar count. 

Fixing your home loan rate can be a great way to keep your mortgage repayments under control and ensure that you don't blow your budget.

Splitting a loan

If you're still unsure about whether a fixed-rate home loan is suitable for you, or you're worried about committing to one, then perhaps splitting your loan is a good option. 

This involves you splitting the amount of your loan into two separate portions; one of which will have a fixed-rate and the other variable. 

You can typically allocate the funds however you like, for example, 50/50 or 20/80. 

The main advantage of splitting a loan is gaining the security of a fixed rate while still having the flexibility and features of a variable rate. 

If you wish, you can also make extra payments on your loan through the variable product. loans.com.au allows up to $10,000 in extra repayments per year on our fixed-rate home loans. 

When the fixed-loan period comes to an end, the entirety of the loan amount reverts to the variable rate. 

Case study: 

Let's introduce ourselves to Anna as a real-world example of splitting a loan. 

Anna has come to loans.com.au seeking a $400,000 loan for a $500,000 property, repaid over 25 years. 

She wants to split her loan 20/80 for a period of three years. 

So $80,000 of her loan would be charged at a fixed rate of 3.19% p.a. while the other $320,000 would be charged at a variable rate of 3.03% p.a.

The repayments on her fixed product would come $387, while her variable repayments would be $1,522. 

Now, although she is paying a higher rate on the fixed amount, she has protected herself from rising rates. 

She's also split her money in such a way that she can still take advantage of the current lower variable rate, and make use of the extra payment feature. 

It's important to note that a split loan is not a type of loan; its a feature of an existing loan that a lender offers. Check out our home loan products to find the right home loan for you.

Recommended reading

What is a fixed rate home loan?

If you're trying to decide whether a fixed rate mortgage is your borrowing match, read the advantages and disadvantages of a fixed interest rate here

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Is it time to fix your home loan?

You need to decide if it’s wise for you to choose fixed or variable based on your own short-term and long-term plans. Find out how.

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Should you choose a fixed rate home loan?

If you’re considering getting a fixed rate home loan, here are some pros and cons to help you with your decision.

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