Fixed Rate Or Variable? Which is Better? By Otto Dargan

Is a fixed rate home loan better?

If only it were so simple... No a fixed rate isn't better or worse than a variable rate. It is your situation and the economic outlook that determines if it is better to fix or stay with a standard variable rate.

So how do I know if fixing is the right thing for my situation?

You should fix your rate if your situation is like this:

You are not going to sell the property
You are not going to make large lump sum repayments
You can't afford to make your payments if rates increase


Does this sound like you? Then maybe you should consider fixing your rate!

So when is the best time to fix?

Choosing when to fix is simple in theory, however most people tend to fix at the wrong time! The economy moves in cycles that are roughly seven years long. During this cycle there are times when variable rates are high (and fixed rates are also high) and times when they are low. So fix your loan when rates are low. Simple right?

Actually it turns out that most people fix when rates are high! Why would they do this? It is because when the economy starts to overheat rates will skyrocket. Fear causes people to fix their rate to protect themselves rather than ride out the storm for 6 to 12 months.

The secret to fixing at the right time is to fix when the economy is in good shape. If you fix for a long term (5 to 15 years) when the economy is good you'll be laughing when the economy is in bad shape!

How long should I fix for?

If you are fixing when the economy is in good shape and rates are low then fix for as long as possible! There is no reason why you shouldn't fix for 10 or 15 years, a good rate is a good rate and you shouldn't pass up the offer!

If you are fixing when the economy is overheating then fix for 1 to 3 years. This way you protect yourself from the high rates to come but will not be locked in for 15 years at a rate that is higher than what it could be.

How do I get the cheapest fixed rate loan

Did you know that banks will give fixed rate professional package discounts if you borrow over $250,000? Negotiate or use the services of a fixed rate mortgage broker to get the best deal available.

Because fixed rates are priced by the banks with their view of the future economy taken into account they vary between the banks. Every bank has their own opinion of what the economy will do in the future! For this reason mortgage brokers that deal with several banks will usually get a better deal than going direct to the bank.

Good luck with your home loan, we hope this advice helps you beat the banks and slash your interest bill!
About the Author

Otto is a Mortgage Broker that has specialized in fixed rate home loans for over 5 years. His company the Home Loan Experts is now one of the top fixed rate home loan brokers in Australia.

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