The fixed vs variable question comes up in almost every client conversation. The right answer depends on your situation, your goals, and your tolerance for rate movement.
A fixed rate locks your repayments for a set period - typically 1 to 5 years. The main benefit is certainty. The trade-off is flexibility - fixed loans typically have significant break costs if you need to refinance or sell during the fixed period.
A variable rate moves with the market. Most variable loans allow unlimited extra repayments, full offset accounts, and the flexibility to refinance or sell without break costs. The trade-off is that repayments can increase if rates rise.
In the current environment, most of our clients are choosing variable rates or short-term fixed periods of 1-2 years. With rate movements anticipated, locking in a longer fixed term carries risk.
A split loan lets you fix part of your loan and keep part on variable. This gives you certainty on part of your repayments while retaining flexibility on the rest.
A fixed rate loan locks your interest rate for an agreed period - typically 1 to 5 years. Your repayments stay the same regardless of what the Reserve Bank does with the cash rate. A variable rate moves with market conditions - when the RBA cuts rates, your repayment falls. When it raises them, it rises.
Neither is universally better. The right choice depends on your income stability, your risk tolerance, your plans for the property, and where rates are likely to move over your fixed period. Lendology assesses all of these factors before making a recommendation.
The primary reason to fix is certainty. If you have a tight budget and a rate rise would cause genuine financial stress, fixing removes that risk for the period of the fixed term. You know exactly what your repayment will be for the next 1, 2 or 3 years regardless of what happens to the cash rate.
Fixing also makes sense when variable rates are low and the expectation is that they will rise. If you can lock in a rate below where the market expects rates to go, you get both certainty and a potential saving over the fixed term.
The risk of fixing: if rates fall during your fixed period, you are stuck at the higher rate. And if you need to exit the loan - to sell the property or refinance - the break cost can be very significant. Lendology always calculates potential break costs before recommending a fixed rate.
Variable loans offer something fixed loans cannot: flexibility. You can make unlimited extra repayments, use an offset account to reduce your interest daily, and refinance without penalty at any time. For borrowers who want to pay their loan down aggressively or who may need to sell or refinance within the next few years, variable is usually the better structure.
Variable also tends to outperform fixed over long periods historically - because you benefit from rate cuts as well as absorbing rate rises. The key question is whether the certainty of a fixed rate is worth the inflexibility and the typically higher starting rate.
Most lenders allow you to split your loan - fixing a portion and leaving the rest variable. A common structure is 50/50 or 60/40 fixed-variable. The fixed portion gives you repayment certainty. The variable portion allows extra repayments, offset account benefits and refinancing flexibility.
A split structure is often the most practical choice for borrowers who want protection from rate rises but do not want to give up flexibility entirely. Lendology models the repayment scenarios across split ratios and lenders before recommending the right structure.
That depends on where rates are, where they are expected to go, and your personal circumstances. Lendology analyses your situation and the current rate environment before making a recommendation. Book a chat to discuss.
A break cost is a fee charged by the lender if you exit a fixed rate loan before the fixed term ends. It is calculated based on the difference between your fixed rate and current wholesale rates - and can be very large if rates have fallen since you fixed.
Most fixed rate loans allow limited extra repayments - typically up to $10,000 per year without penalty. Variable loans generally allow unlimited extra repayments. A split loan lets you make unlimited extra repayments on the variable portion.
Generally no. Offset accounts are a feature of variable rate loans. This is one of the main trade-offs of fixing - you give up the interest-saving benefit of an offset account for the duration of the fixed term.