With interest rates on the move again, this time in a downward direction, it is no surprise more borrowers are considering their next move. After years of rate hikes and mortgage stress, the certainty of locking in a competitive rate is looking more appealing than ever.
But with so many factors at play, how do you know what home loan option is going to work for you?
Here are our top considerations.
1. The Case for Fixed: Certainty and Stability
After a period of elevated fixed rates, some banks have started introducing more competitive offers, and we are seeing more borrowers taking up the option to lock things in. A fixed rate gives you predictability. Your repayments stay the same for the duration of the fixed period (typically 1 to 5 years), which can be a huge help with budgeting and cash flow planning.
It also means you are protected if rates go back up. For variable loans to outperform, they would need to drop below the fixed rates, and be lower on average than the variable rate over the fixed term. However, fixed loans tend to come with less flexibility:
- You will generally be restricted in how much extra you can repay
- There might not be access to an offset account, or a limited offset at best
- If you want to refinance or sell early, you could face break cost
2. The Case for Variable: Flexibility and Features
Variable loans typically offer:
- Full offset accounts
- Unlimited extra repayments
- Easier portability if you move or refinance
If the RBA continues to cut rates, a variable loan means you will benefit from lower repayments as soon as your lender passes on the change.
But with that flexibility comes uncertainty. If rates rise again unexpectedly, your repayments could increase, sometimes significantly, as we have seen over the last few years.
3. What Will Save You More Overall?
It all comes down to your outlook on interest rates and your own financial goals.
With the current fixed rates being lower than the variable rates, the total interest paid over the term might still be less even if variable rates fall below the current fixed rate. On the flip side, locking in too early could mean missing out on future savings if the RBA cuts rates more aggressively than expected.
A good finance broker will help you assess these scenarios based on your loan amount, timeframe, and lifestyle plans – whether that is starting a family, changing jobs, or moving house.
4. You Do Not Have to Choose Just One
Split loans are becoming increasingly popular. They allow you to fix part of your loan (for security) while keeping the rest variable (for flexibility). That way, you can make extra repayments or use an offset account on the variable portion while still knowing part of your repayments will not change.
Final Word
Interest rate movements are only one piece of the puzzle. Your plans, risk appetite, and need for flexibility should all factor into your decision.
Now more than ever, it pays to have the right person in your corner. A finance broker can compare options, explain the trade-offs, and help you make a confident, well-informed decision. After all, brokers are legally bound to act in your best interests (this is a big deal!), whereas lenders do not have that obligation, and they will only recommend their own products.
Written by Andrew Whelan, General Manager – AP Group
AP Group are the leading pharmacy experts in Australia and specialise in helping first time buyers find the right pharmacy and secure the finance to support their purchase.
We connect existing owners with over 5000 ready and eager investors via our cutting-edge online Data Room. Our Data Room keeps confidential listing data secure and allows buyers to make informed decisions on each of our pharmacies for sale.
AP Group have built connections with all the major banks and a host of smaller lenders, ensuring that first time pharmacy buyers find a better deal.
About the Author:
When Andrew Whelan is not out pedalling his bike or looking after his two marvellous kids, he’s pedalling through pharmacy finance and strategy development.
Having been with AP Group since the beginning, Andrew has more than a decade experience in pharmacy and is an asset to the sales and finance division. He’s a numbers wizard, people person and sustainability champion — leading AP Group to achieve official Carbon Neutral Certification with Climate Active.
Before AP Group, Andrew spent more than a decade in the telecommunications and media industry including 7 years at Telstra in a variety of senior management roles and 3 years in the United Kingdom managing the commercial function for the British Sky Broadcasting — a time where it was the fastest growing broadband provider in the UK.
So it’s no surprise that he is well equipped to help customers with some of the biggest decisions they will ever make — buying a home or investing in a pharmacy — and helping to show them what’s truly possible.