Fixed Vs. Variable

Fixed Vs. Variable

Fixed Vs. Variable

Fixed Vs. Variable

“Should I fix my loan?” is probably the most common question after a loan has been approved!


Firstly, let’s breakdown the difference between the two.

Variable interest rates can go up or down as the lending market changes.


·        You are able to over pay the loan without being penalized

·        You’ll have 100% offset (Depends on the bank and product)


·        Variable rates can go up

·        Budgeting is harder as repayments changes on monthly basis


Fixed Interest Rates stays the same for a set period of time i.e., 2 years fixed. The rate then goes to variable interest rate after the term finishes.


·        Makes budgeting easier as you have the CERTAINTY on how much repayments will be

·        Usually cheaper than variable rates


·        Huge break cost applies if you break the loan.

·        Depending on which bank, offset account may not be available.


When deciding. The Best way to look at it is to workout how much savings you will have/earnt in 1 year.  And if the answer is 0$ or less than $10k, then fixed rate may work best as the rates are lower and an offset account may not work to your advantage. Now you might say, “what about if the rate goes down?”. Just be mindful that the variable rates now are almost 1% higher than fixed rates.

So the time you have your loan on variable, you are already paying more than the difference.

“Why not have both?”

If you are thinking you will save or will have about $30k- $50k in a year, then leave $100k in variable, and fix the remaining amount for 2 years.  “What you’ve done is taken advantage of the low fixed rate and catered for a variable portion ready to be offset by the potential savings/earnings you’ve anticipated”

In short, just because your neighbour did it, it doesn’t mean it will be the best for you.

Review your options.

-Roshan Amarasingha

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