Fixed vs Variable Rate Loans
Both fixed rate home loans and variable rate home loans have their advantages and disadvantages depending on the economic environment. It is important when choosing a loan to understand what will work for you.
The main difference with a fixed rate versus a variable rate is that the interest repayments will stay the same throughout the term of the loan. Regardless of interest rate changes in the market, your repayments will remain unchanged. Many people find the security of this unwavering rate a major factor when choosing their loan.
On the other hand, with a variable rate home loan, the interest rate is subject to market fluctuations throughout the term of the loan. This means that if rates go up, your monthly repayments will increase. There is a risk involved with a variable rate loan because the market can fluctuate quickly and unpdredicably, which can result in considerable financial hadship.
In many instances you can split the home loan so that it is part fixed and part variable, which some experts recommend. By doing so, you are effectively halving your exposure to high interest rates.