Buying a home
Fixed vs variable loan: What's the difference?
26 August 2020
Researching home loans may not be the most thrilling thing in the world, but it’s important to understand your options. We’ve put together this quick guide explaining the key differences between fixed rate and variable rate loans, and a potential third option you may not have considered.
What’s a fixed home loan?
A fixed home loan allows you to lock in an interest rate for a certain period of time. With Suncorp Bank, that can be 1, 2, 3, or 5 years.
A fixed home loan has a few advantages:
- It’s easier to budget, as you know exactly how much your repayments will be, which can give you some peace of mind.
- You’re not at the mercy of interest rates rising, which would potentially increase your repayments.
- On the flip side, there are some disadvantages:
- You don’t benefit from any reductions to interest rates during your loan period.
- Although you can usually make extra repayments on your fixed home loan, you might have to pay a fee to do so if it is over a certain amount.
- You might not have the same flexibility when it comes to accessing cashback or offsetting your mortgage (more on that later).
What’s a variable home loan?
A variable home loan means that your interest rate isn’t locked in, so your repayment amounts can vary as interest rates rise and fall.
On the plus side, that means:
- if interest rates fall, you might pay less on your loan repayments, and
- you generally get more flexibility. Having the freedom to offset your mortgage (that is, use the balance of your savings or transaction account to offset against the remainder of your loan balance) and redraw extra payments you’ve made as cashback can help.
- You have the ability to make extra repayments without incurring a fee.
However, you do still need to keep in mind that:
- interest rates can fall, but they can also rise, which could leave you forking out more than someone with a fixed interest rate
- because your repayments can vary, it’s harder to budget, and
- it’s difficult to predict how much you’ll pay over the life of a home loan due to interest rate fluctuations.
Choosing the right home loan for you
Deciding which loan type will work for you is tough, we know. Instead of choosing between fixed and variable, splitting your home loan might work better for you.
This is exactly what it sounds like — your home loan is part variable, part fixed. You can split it however you like! For example, you could choose 20% of your loan at a fixed rate, and leave 80% of it on a variable interest rate.
Another way to get through the tricky decision process is by talking to a pro. Suncorp Bank has a team of expert Mobile Lenders who offer obligation-free advice at no charge. Check out our Mobile Lenders page to learn more and book an appointment.
- What is a ‘split loan’, exactly?
- Home loan offset account: how to make it work for you
- How to apply for a home loan from your couch
Information is intended to be of a general nature only and any advice has been prepared without taking into account any person's particular objectives, financial situation or needs. You should make your own enquiries, consider whether advice is appropriate for you and read the relevant Product Information Document before making any decisions about whether to acquire a product.