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Is a fixed or a variable home loan better?

12 Feb 2010 Ian McDonald 0 Comment

With interest rates staying on hold for the moment, I’ve had a lot of people in my Bacchus Marsh real estate office talking about whether or not now is a good time to fix in their home loans.

Now when you fix in your home loan rate you’re always taking a bit of a gamble. Obviously you want to fix your home loan in at the lowest rate possible, but you never really know when that is. If you had fixed your home loan in when the cash rate was 3 percent it was probably a very clever move, but I would be a bit more cautious when fixing at the current time.
 
Don’t get me wrong I do think that the Reserve Bank will be rising interest rates again, possibly even at their next meeting, but if you lock in your interest rate now you might miss out on some better home loan deals.
 
Non-bank lenders are starting to get back into the home loan market this year (after being absent after the GFC) and so will hopefully force the big banks to come out with more competitive loans. So if you hold out for just a little while you might see some better home loans deals come out.   
 
I think it’s also good to understand that having a variable loan can also give you a lot of advantages when compared to a fixed loan, such as being able to pay off more than you need to each month so that you can get ahead in your home loan, and you can actually end up paying less in the long run.
 
If you’re thinking of fixing your home loan in or simply can’t decide what to do, you’re best bet is to talk to a financial advisor who should be able to tell you which type of loan will work for you and your situation, because at the end of the day different home loans work best for different types of people.

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