Variable or Fixed Rate in 2022?

Fixed vs Variable in 2022

While choosing a suitable loan for a home, investment property, and refinancing, customers are often faced with a dilemma and that is whether to choose a fixed or variable interest home loan. To fully know which home loan is suitable for you, we have to go beyond the offered interest rate and understand how each of them works. 

Fixed-Rate Home Loan

Allows you to lock in an interest rate on your loan, typically for 1 to 5 years. This gives home buyers a certainty in their repayment, without having to deal with the volatility of variable rate home loans. 

Having a fixed interest rate will limit how much extra they would be able to repay during the fixed term. Some banks may allow additional repayments but there is generally a limit between $20,000 to $30,000 per fixed term. A penalty will occur if customers decide to break the fixed term such as selling the property, refinance to another lender, or if they decide to pay off the loan. 

If the interest rate continues to go down, customers are often locked in at the higher interest rate, and in general offset account do not work. 

Variable-Rate Home Loan

A home loan where payments increase or decrease in line with rises or falls in official cash rates. The advantage of variable rate home loans is their flexibility for customers to make additional repayments into their loan, this gives customers who are diligent to pay off their loans at a much faster rate. There are no penalties if the customer decides to refinance however there may be a charge of $300 to $700 depending on the lender. 

However variable rate home loans are subject to market fluctuations, and if the interest rate goes down it would be a benefit for customers as they would have to pay less interest but if the rate goes up during a crisis, some customers may be faced with a repayment that may not benefit their financial circumstances. 

So Which Should You Choose? 

In the end, the choice of whether you choose a fixed or variable rate will depend on your financial circumstances. If you are a high-income earner and can pay off the loan quicker, it is recommended to proceed with a variable home loan as they offer the flexibility in making additional repayment without penalties.

But if you are looking to pay a minimum repayment on your home loan and looking for certainty in your repayment, a fixed rate will be a good option for or you can also choose to do a split on your home loan where you can have the best of both world. 

Bank Offerings

As of January 2022, there has been movement on the fixed rate over the past 6 months. Most of the lenders have increased their fixed rate from 1.9% to about 2.5%. Variable-rate however, has reduced from the mid 2% down to 1.99%. This will vary depending on your circumstances such as loan value ratio and lending amount. 

 Hope you guys enjoyed this simple informative article, if you are looking for a consultation on your loan, do feel free to reach out to us.

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