A Guide to Choosing the
Right Option
Variable Loans
Variable-rate loans have interest rates that fluctuate based on the official cash rate, market conditions, and each lender's pricing decisions. When interest rates decrease, your payments decrease; when rates increase, so do your payments.
Advantages
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Repayment Flexibility: Variable loans often allow extra repayments without penalties, enabling you to pay off your loan sooner. Many variable loans also feature offset accounts or redraw facilities, which help reduce interest payments by lowering the effective loan balance while still giving you access to extra funds if needed.
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Easier Refinancing: Switching to a new lender or product is often simpler with variable loans, as they don’t generally involve break costs.
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Savings with Rate Decreases: When lenders reduce interest rates, borrowers with variable loans benefit directly through lower payments.
Disadvantages
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Higher Costs with Rate Increases: Variable rates can rise, meaning higher repayments for borrowers when rates go up.
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Cash Flow Uncertainty: Because rates can vary, predicting long-term payments is challenging. Borrowers may need greater flexibility to handle potential increases, though features like offset accounts can help provide a financial cushion.
Fixed Loans
Fixed-rate loans offer stability, as the interest rate remains unchanged over the fixed period (typically 1–5 years), allowing for predictable repayments and easier budgeting. Fixed rates can provide protection against rising interest rates; however, if variable rates fall, your payments remain the same.
Advantages
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Protection Against Rate Increases: Fixing your rate ensures stable payments, providing peace of mind for those seeking predictability. Some lenders may offer rate locks to secure a rate before loan settlement, often for a one-time fee.
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Predictable Budgeting: Knowing your exact repayment amount helps with financial planning and managing cash flow.
Disadvantages
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No Benefit from Rate Cuts: Fixed-rate borrowers won’t benefit from any rate reductions their lender might offer during the fixed term.
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Limited Repayment Flexibility: Fixed loans often restrict extra payments and may incur significant break fees if you refinance, sell, or pay off the loan early. After the fixed period, plan to handle any potential rate adjustments.
Split Loans
Split loans allow you to divide your loan into multiple portions, typically one part with a variable rate and another with a fixed rate. This setup provides a blend of rate stability and repayment flexibility.
With the fixed-rate portion, you gain stability and predictable payments, while the variable-rate portion allows additional repayments without penalties, potentially helping you pay down the loan faster. Some variable split loans also offer offset accounts or redraw facilities, depending on the lender.
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Important Terms
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Offset Account: A linked account that reduces your loan’s interest by offsetting the account’s balance against the loan balance.
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Redraw Facility: Enables access to extra repayments you've made on the loan, allowing flexibility if you’ve paid more than the minimum.
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Break Cost: A fee lenders charge to cover their losses if you repay a fixed-rate loan early or make changes during the fixed term.
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Rate Lock: An optional fee to secure a fixed interest rate before loan settlement, typically up to 0.20% of the loan amount.​
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Disclaimer
This website has been prepared with all due diligence and care, based on the best available information at the time of last update. Fortifi Finance holds no responsibility for any errors or omissions within. Any decisions made by other parties based on this information are solely the responsibility of those parties. Capstone Mortgage Solutions Pty Ltd ACN: 665 796 234 is an authorised credit representative 547296 of Australian Finance Group Ltd ACN 066 385 822 (AFG) Australian Credit Licence 389087.




