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What's a fixed and variable home loan?

Do you know the difference between a fixed and variable interest rate?

Don't worry if you don't – here's a quick explanation.

Variable rates (change)

Lenders can raise or lower their variable interest rates whenever they like, such as in response to changes in market conditions. So if you get a variable home loan, it's likely to change on a regular basis.

Variable borrowers benefit when lenders cut rates, but pay more when lenders raise rates.

Variable loans may allow extra repayments and have offset accounts, whereas this may be less likely to be found with fixed loans.

Fixed rates (stay the same)

By contrast, lenders can't change the interest rate on a fixed loan during the fixed period, which generally lasts from one to five years. So your repayments stay constant from month to month.

Fixed borrowers benefit when lenders raise rates (as they don't have to pay extra), but may pay more than other borrowers when lenders lower rates (as they don't get a rate cut).

Fixed loans tend to have fewer features and be less flexible than variable loans.

Split loans

There’s also a third option, known as a ‘split loan’.

This is when part of your loan is fixed and part is variable, and could potentially let you have your cake and eat it too.


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