Finance Property Fixed or variable loan: which way should you go?

Fixed or variable loan: which way should you go?

Low house-price growth makes negative gearing less attractive. Photo: Shutterstock
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While fixed rate home loans offer certainty and protection from the volatility of interest rate rises, variable rate loans let you take full advantage of valuable rate cuts. Unfortunately, there is no way to predict which way rates will swing. Even seasoned economists get it wrong.

Some homeowners chose a fixed rate loan because they think interest rates are low and are only going to increase in the future. Others are not so sure about interest rate movements and simply want peace of mind.

Homeowners with variable rate loans are vulnerable to fluctuations in interest rates. They make savings when rates dip low, but lose out when rates surge upwards.

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Keep split loans in mind when you apply for a home loan.

Historically low interest rates have prompted a fixed-rate war in the lending market. This means homeowners have the luxury of choosing from a wide range of competitively priced fixed rate loans.

With interest rates at historic lows, there are important factors to take into account.

Savvy homeowners looking to fix should remember that the fixed loans may have a break fee which they’ll be required to pay. Break fees apply if you change or pay off your loan within the set period, which are generally one, three or five years. Check whether other fees apply, if extra repayments can be made and whether you can have an offset account linked to the loan.

And of course, those who select fixed rates should always prepare for the frustrating possibility of interest rates dropping below the rate they have locked in.

Still unsure? There is a way to have the best of both worlds.

Split loans allow you to fix part of your home loan and keep the remainder variable. This way only part of your loan is controlled by interest rate ups and downs.

With ME’s Flexible Home loan homeowners can choose between fixed, variable or split loan options. There are no application or ongoing account-keeping fees and you can make up to $30,000 in additional payments during the fixed term without incurring a break cost.

This content was sponsored by ME.
Comparison Rate based on a loan of $150,000 for a term of 25 years. This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Terms, conditions, fees and charges apply. Applications are subject to credit approval. For more information, go to or click the logo below.

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