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Fixed vs Variable Home Loans, What’s the Difference?

One of the main differences between home loan types is whether they are a fixed or variable rate loan. A fixed rate home loan is one in which the interest is fixed to a specific rate. This is an excellent choice for those times when interest rates seem to spiral out of control. On the other hand, it’s not so good if they plummet and you can’t take advantage of it.

A variable home loan is one in which the interest rate is not fixed, but paid on the rate of the day – high or low. As you can tell, it too, has its good side and bad side. When the interest rates fall, you get the advantage, but when they rise it’s not so good. To survive, you may have to budget strictly.

Many home loans offer split rate flexibility. That is, the interest rate is fixed for a certain number of years, and then it can be either made variable or fixed again, depending on the interest rate climate. This offers a measure of security, yet you still could miss out if interest rates plummet just after you’ve fixed yours to stay put. It’s a risk that you’ll have to take.