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Fixed Rates vs Variable Rates

real estate investment advice
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With some 3 year fixed rates now below 4.00% why wouldn’t you fix your home loan? Historically this is the best that 3 year fixed rates have ever been and are currently lower than the majority of the variable rates on offer.*

With this in mind, part of the decision to lock into a fixed rate should involve taking a look at your entire financial position and then discuss what impact locking the rate will have over the fixed rate period, based on the following pros and cons:

Fixed Rate Pros Fixed Rate Cons
  • The interest rate will never change over the length of the   note regardless if interest rates go up or down.   Payment amount (principal and interest) will not fluctuate ever.
  • Security and stability offer peace of mind knowing your monthly mortgage payment is always the same.
  • If rates go down, too bad. If you want to take advantage of the lower rates, you will have to refinance, which may come at a cost due to exit penalties or economic costs.
  • You are limited to what you can pay as extra payments.
  • You cannot redraw these extra payments during the fixed rate period.
  • You cannot typically take advantage of offset accounts against the fixed rate portion.
So how do these pros and cons compare to Variable rates?
 Variable Rate Pros Variable Rate Cons
  • Initial beginning rate is very low making those first few years of home ownership easier to manage.
  • If Interest rates go down, so does your payment freeing up some money and also means more of your payment will go towards the principal.
  • You can typically pay whatever extra payments you like without penalty. You can also redraw extra repayments.
  • Offset accounts are available.
  • If interest rates go up, so do your payments.
  • The reality is that while many fixed rate loans are offering inviting deals, it makes good sense to weigh up every aspect of the loan.
  • If you simply want the best 3 year rate in recent history then go for it and lock yourself away from all of the talk and speculation about interest rates and enjoy yourself.

Both variable and fixed rates are at all time lows so now is the best time to take advantage of them. Whatever your tendency or leaning is regarding rates you should first speak with an expert like Crosbie Finance so that all aspects of your finance position and strategy can reviewed.

*https://www.rba.gov.au/statistics/tables/xls/f05hist.xls


By Sean Gillard, Partner at Crosbie Finance

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