At the end of this fixed period you have the choice to switch to a variable rate or fix the loan for another few years.
A lot of Australian borrowers choose a fixed rate so they can take advantage of low interest rates by locking it in for a set period, usually from one to ten years. This offers them financial certainty and the ability to budget their set repayments each month, as they won’t be affected by fluctuating interest rates.
There are a few things to consider if you are still juggling your decision to fix your rate or leave it as a variable interest rate mortgage. The main considerations are interest rate rise and falls and home loan features.
If you are fortunate enough to lock in your fixed rate before an interest rate increase then you could enjoy lower fixed rates while the variable rates rise. On the flip side, if there is an interest rate fall during your fixed rate period you will not be able to benefit from this and may end up paying higher interest than those on a variable rate.
The other thing to consider is the home loan features offered for fixed and variable mortgages. Home loan features vary from lender to lender and from loan type. In general, fixed loans are less flexible than variable loans and may have more limited features, for example you can’t break a fixed loan without incurring a penalty. This isn’t the case for variable rate home loans.