Variable Rate vs. Fixed Rate Home Loans

Before you decide on which home you would like to buy, you’ll need to obtain a loan to finance your purchase. There are different types of home loans available depending on the lending institution and interest rates on offer. The two different types of home loans include the variable rate and the fixed rate home loan.
You need to decide whether you want a variable rate or fixed rate home loan. Both have their own pros and cons.

Variable rate home loans are the most popular in Australia. They have a variable interest rate meaning that the interest on repayments is based on the market condition. Interest rates in this type of loan fluctuate and you are charged an interest rate that is dependent on the financial index rate listed in the Reserve Bank of Australia. As the economy goes into boom or recession, the interest rate will grow and decrease.

A Fixed rate home loan is considered ‘safer’ by some as they never change throughout the life of a loan. The pros of a fixed rate home loan include the fact the interest rate will not change despite a volatile market. A fixed rate home loan will also always have the same payment amount including the principal that is unaffected by economic conditions.