Choosing the right home loan is one of the biggest financial decisions you’ll make, and with today’s unpredictable market, it’s more important than ever to understand your options. Should you lock in with a Fixed-rate loan, ride the waves with a Variable-rate loan, or find balance with a Split loan?
Each option has its own set of benefits and trade-offs, and what’s best for you depends on your unique situation and the current market climate. In this blog, we’ll break down these three popular home loan types—Fixed, Variable, and Split—to help you make an informed decision. So, which loan is right for you?
Let’s dive into the pros, cons, and key considerations for each.
Fixed-rate home loans
With a fixed-rate home loan, the interest rate is predetermined and stays fixed throughout the term of the loan, usually between 1-5 years. Once the term has ended, you can choose to fix again at a new rate available at that time or switch to a variable rate.
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Variable-rate home loans
A variable-rate home loan moves in line with market conditions, meaning your rate could fluctuate depending on the official cash rate set by the Reserve Bank of Australia (RBA).
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Cons:
Split loan
Can’t decide between fixed and variable? Split loans let you combine both. You can allocate part of your loan to a fixed rate and the rest to a variable rate, giving you the best of both worlds.
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Cons:
Which loan works best for today’s market?
With some fixed interest rates currently lower than variable rates, many borrowers may be tempted by the cheaper option. Locking in a fixed rate now could mean potential savings – up to 0.60% or $250 a month on a $500,000 mortgage – giving immediate relief from rising living costs. But what’s the risk?
Several experts predict interest rates may drop over the next 12 months. If you lock in a fixed rate now, you’re essentially betting that rates won’t fall too much. However, for many borrowers, the security of locking in a lower rate today outweighs the chance of missing out on potential rate cuts in the future. When it comes to deciding whether to fix, float or split, it all depends on your financial goals, your current financial state and how much risk you’re willing to take.
Would I even qualify for a loan?
Many banks are offering competitive loans for those who’ve had a solid repayment history over the past year. If you’re thinking of switching loans or buying your first home, now could be a great time to explore your options.
If you’re unsure whether a fixed, variable, or split loan is the right choice for you, speaking with a mortgage broker can help you weigh your options. At Nectar, our brokers work with over 50 lenders and can provide expert guidance to help you make the best decision for your financial future. Reach out to us today, and we’ll help you navigate the home loan process with confidence.