Variable interest rate

Variable interest rate loans are the most popular home loans in Australia. Interest rates can go up or down over the life of the loan depending on the cash rate set by the Reserve Bank of Australia (RBA) as well as funding costs and the individual decisions of each lender.

Pros:

If interest rates fall, the size of your minimum repayments will too.

Standard variable loans generally allow you to make extra repayments. Even small extra payments can cut the length and cost of your mortgage.

More loan features may offer you greater flexibility, such as an offset facility. It's easier to make changes to the loan at a later date.

Cons:

If interest rates rise, the size of your repayments will too.

Increased loan repayments due to rate rises could impact your household budget, so make sure you take potential interest rate hikes into account when working out how much money to borrow.

Fixed interest rate

A fixed interest rate stays the same for a set period (either 1, 2, 3, 4 or 5 years). At the end of the nominated period, the interest rate then changes to a variable interest rate if you do nothing, or we can help you arrange another fixed rate.

Pros:

Your regular repayments are unaffected by increases in interest rates.

You can manage your budget better during the fixed period, knowing exactly how much is needed to repay your home loan.

Cons:

If interest rates go down, you don’t benefit from the decrease. Your regular repayments stay the same.

You can end up paying more than with a variable loan if rates are higher under your agreed fixed rate for a prolonged period.

There is very limited opportunity for additional repayments during the fixed-rate period.

There may be significant break costs that you must pay if you exit the loan before the end of the fixed-rate period (such as from the sale of the property or refinancing of the loan).

Split rate

If you're not sure whether a fixed or variable interest rate is right for you, you can consider a bit of both. With a partially fixed rate (split loan), a portion of your loan has a fixed rate and the rest has a variable rate. You can decide how to split the loan (for example, 50/50 or a set dollar figure like $200,000). You enjoy some of the flexibility of a variable loan along with some of the certainty of a fixed-rate loan.

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