Variable vs Fixed Interest Loans
Whether you are building or buying, for most of us the world of finance is a big scary place to get involved in. The fact however remains that finance is often a critical factor in taking on the challenge of owning a family home.
One of the many considerations that fall on your shoulders with finance are the option to take on a fixed or variable loan. When referring to fixed and variable we are speaking to the interest rate, not the term of the loan. To begin lets briefly explain the differences:
Fixed
A fixed loan will have a locked in interest rate for a defined period. The general duration of fixed loans is 1-5 years however each bank’s offering is unique. Depending on whether the market expects rates to increase will depend on whether you get a lower or higher interest rate for a longer term.
Variable
In exact contrast of Fixed rates, Variable rates are not locked in and are subject to change. If the bank decides to increase this rate, your repayments will increase. If they drop their rate, your repayments will also drop.
There is no right and wrong choice when it comes to Fixed vs Variable and ultimately the choice comes down to your personal risk tolerance and situation. The joys of a Fixed rate ensure that no matter what the market does you can forecast your repayments. Variable will do you favors when the market rate drops meaning you gain immediate repayment reduction.
At the end of the day this is a decision that you must make based on what feels right to you. Both Fixed and Variable rates are calculated based on banks data and forecasts of the market and are generally ‘fair’ market rates.
*This data does not constitute financial advice. Please seek direct advice for a professional specific to your situation.
