Fixed vs variable home loans:
Choosing what’s right for you
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Fixed rate home loans | Fixed vs Variable | Which option to pick | Pepper Money's really helpful options
When it comes to choosing a home loan, one of the biggest decisions you’ll make is whether to go with a fixed or variable interest rate. It’s not just about the numbers, it’s about how you want to manage your money, your lifestyle, and your future plans.
Let's break it down so that you feel more confident deciding which type of interest rate is more suitable for your situation.
What is a fixed rate home loan?
A fixed rate home loan means your interest rate remains the same for a set period, typically 1, 3, or 5 years. This gives you certainty over your repayments, which can make budgeting easier and reduce financial stress.
Potential benefits
Repayment certainty: Your repayments won’t change during the fixed term, even if market rates rise.
Peace of mind: You’re protected from interest rate hikes.
Budgeting made easier: Knowing exactly what you’ll pay can help with financial planning.
Potential limitations
Less flexibility: You may not be able to make extra repayments or access redraw features (or these may be limited).
No benefit if rates fall: You’ll continue paying the fixed rate even if market rates drop.
Break fees: Refinancing or exiting your existing home loan early may result in break fees or early repayment fees.
What is a variable rate home loan?
A variable rate home loan means your interest rate may change over time, usually in response to movements in the Reserve Bank of Australia’s cash rate or if your lender needs to make some adjustments.
Potential benefits
Flexibility: Make extra repayments, access redraw, and use offset accounts to reduce interest repayments.
Potential savings: If rates drop, your repayments may decrease.
Easier refinancing: You can switch to a better rate without hefty break fees.
Possible limitations
Repayment uncertainty: If rates rise, your repayments will also typically increase.
Budgeting challenges: Fluctuating repayments can make it harder to plan ahead.
Hidden costs: Setup and monthly fees may apply, so it’s a good idea to check the comparison rate to understand the true cost.
Fixed vs variable: Side-by-side comparison
| Feature | Fixed rate loan | Variable rate loan |
|---|---|---|
| Interest rate stability | Fixed for a set term | Changes with market conditions |
| Repayment certainty | High | Low |
| Extra repayments | Often restricted | Usually allowed |
| Redraw/offset features | Limited or unavailable | Commonly available |
| Benefit from rate drops | No | Yes |
| Risk from rate rises | No | Yes |
| Break fees | Often apply | May not apply |
| Budgeting ease | Easier | Requires more planning |
How to decide which option could be right for you
Choosing between fixed and variable comes down to your financial goals, risk tolerance, and lifestyle.
Here are some tips to help:
Use a repayment calculator
Check the comparison rate
Think long-term
Pepper Money’s really helpful options
At Pepper Money, we offer:
Need help deciding? We’re here to help.
We get that choosing a home loan can feel overwhelming. That’s why we offer tools, calculators, and real people to help guide you through it.
Explore your options, crunch the numbers, and find a loan that works for you.
Contributor | Anthony Moir, Treasurer
Anthony joined Pepper Money in February 2021 as Treasurer. With over 25 years of experience in treasury and debt capital markets, he has worked with a diverse range of bank and non-bank lenders. Read more.
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