Generally speaking, if interest rates are relatively low, but are about to increase, then it will be better to lock in your loan at that fixed rate.
Fixed
Pros
- Increases in rates won’t affect you – reduces any stress you may have about this
- Makes budgeting easier as repayments will always be the same
- Could cost you less
Cons
- If interest rates go down, you won’t get the benefits
- There is less flexibility in changing your loan and can be expensive if you break the contract
- Fewer features – typically borrowers aren’t able to redraw funds or link an offset account to their loan
Variable
Pros
- Allows flexibility on repayments (wider range of repayment options)
- Likely to pay less interest overall (indicated by several studies)
- You benefit from drops in interest rates
- Easier to refinance and switch to a different lender or home loan product
Cons
- If rates rise, you will end up paying more
- It is more difficult to budget as rates can change at any time. Meaning borrowers are required to have more flexibility
