Fixed Rates v/s Variable Rates Home Loans

by / Saturday, 06 June 2015 / Published in Home Loans

Go Through The Guide To Gain A Wider View Of Fixed Rates V/S Variable Rates Of Home Loans!

It is quite true that buying a home is always an opportunity whether you want a big or small one. Nowadays, fulfilling a dream of owning home is not difficult with the availability of variety of loans in the lending market of Australia. However, choosing the perfect option of Home Loans for you often put you in a big dilemma. One can simply avail Home Loans choosing between fixed as well as variable interest rates to suit the customer’s requests and budget.

Now, stop getting anxious about whether to go for fixed or floating interest rates loan deal. To know the difference between fixed rates and variable rates of this loan in a better way, reading the guide below will definitely proved as quite helpful.

Types of Home Loans:

Fixed-rate and variable rates are basically two types of Home Loans available in the marketplace. The very first step that the loan seeker should follow while started shopping for a loan is to determine which type of option i.e. fixed or flexible rates of loan suits best to their needs. To know which type would go better to your needs, read the information below:


Fixed-interest rates means that the interest rates charged on these loans will remain fixed during the entire duration of loan. As a result, the payments of the financial service will be the same over the complete term. The better side of taking fixed-rate loan deal will depend on the reason that the loan has been taken and the tenure of it. However, plus and minus of everything are always there:

Advantages of Fixed-Rates:

  1. In this, the interest rates will not change irrespective of the market fluctuations. Therefore, according to your loan contract, the interest rates will remain stagnant even if it will climb to higher levels before the end of your loan term.
  2. Choosing the fixed-rate will give a safe borrowing as the borrower will remain protected from sudden or potential rise in the interest rates in the marketplace.
  3. Fixed-rates are easy to understand and bring a sense of certainty in the borrower’s financial situation. It is suitable for those who are good at budgeting.

Disadvantages of Fixed-Rates:

  1. The major drawback that the borrower may have to bear with fixed rates is it is comparatively 1 to 2.5 percent higher than varied rates loan option.
  2. Borrower will not get benefitted with the reduced interest rates in the loan market as it will remain fixed for the entire loan term.

Varied-Interest Rates:

Variable-interest rates means that the interest rates charge on the outstanding loan payments vary with the change in the market interest rates. Basically, variable-rates Home Loans are tied to the base rate and with the help of the floating element, the rates will either rise or decline according to the market scenario. As a result, your payment will also vary as long as it is combined with principal amount and interest.

Here are some good and bad aspects about varied interest rates.

Advantages of Variable-Interest Rates:

  1. Varied-interest rates loans are cheaper as compare to the fixed-rates loan as variable rates will charge 11.5 percent whereas fixed rates charge 14 percent. So, you can save even when the floating rates goes over the fixed-rates.
  2. When the floating rates go higher than the fixed rates, it will be for some time period and not for the entire term.
  3. Variable interest rates are better option when the interest rates are on the decline as the interest rates of your loan will also falls.

Disadvantages of Variable-Interest Rates:

  1. It becomes quite complicated due to the uneven monthly payments of the loan.
  2. Borrowers may find difficulty in budgeting due to the sudden hike in the monthly installments due to the rise in the rates in the lending market.
  3. Borrower may face the imbalances in the monthly budget and the borrowers may have to cut down their necessary expenses to pay their EMIs to make their monthly budget in order.

Final Outcome:

It is true that no one can actually predict the future interest rates. Financial experts agree on the fact that fixed-rates Home Loans are definitely a better option when the economic scenario assures a hike in the interest rates in the future. However, Home Loans Experts analyzed that borrower are likely to pay less overall with the variable interest rates as compare to the fixed rates.

All in all, the type of home loan can be decided by giving a better look at your credit rating, employment history, and the loan amount you plan to use for the down payment. Using home loan calculator helps to calculate your loan repayment structure to let you live in a worry-free manner.