Buying your next home

With a variable rate home loan, your repayments can be affected by your interest rate going up or down when the Reserve Bank changes the cash rate.

Variable home loans suit borrowers who want flexibility such as the ability to make extra repayments and who aren’t concerned by the possibility of their interest rate going up or down over the course of the loan.

A fixed rate means that your repayments are locked in for a fixed term (usually 1 – 5 years). At the end of the fixed term you will get the option to refix your loan at a new market rate or switch to a variable rate.

One of the benefits to a fixed rate home loan is that Budgeting is made easier as you don’t have to worry about your rate or repayments changing for the fixed loan term.

The main downfall of a fixed rate home loan is you won’t benefit from any rate drops while you’re on the fixed term, but the upside is that you’re also protected from rate increases.

Fixed rate home loans can also be less flexible in terms of making extra repayments to pay off your loan quicker.

A split rate home loan is when your lender splits your home loan so that a portion of the borrowed amount is on a variable rate and the remainder is on a fixed rate.

This is a popular loan option as borrowers have the flexibility to make extra repayments and redraw on the variable portion of the loan but are less exposed to rate increases and budgeting uncertainty by having part of the loan fixed.