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

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