Variable or fixed?

The recent interest rate rises have seen many people wondering if they should fix their home loan. One thing that is certain is that you cannot calculate and compare the performance of a fixed rate Vs a variable rate until the fixed period has ended.

Why?

Because we simply cannot foretell what the variable interest rates will be in 6 months let alone 2-5 years.

With basic variable rates sitting below 2.5% and fixed rates between 3.5 - 5%, why would you fix now? (1 year fixed rates are currently sitting at 3.5%, 2 years at 4%, 3 years at 4.5%, 4 years at 4.75%, and 5 years at 5%)

A fixed interest rate is a personal preference. You pay a premium for the luxury of knowing exactly what your repayments will be for the set period. This may suit you and your situation much better than the worry of not knowing what interest rates will be doing in the near future.

Another option is to split your loan with a portion fixed and a variable portion. This allows you to take advantage of the benefits of a variable interest rate (such as being able to make additional repayments and utilise an offset account and to redraw available funds when required) and also gives you some certainty over the fixed portion of the loan.

This video gives a great summary on the topic: https://www.youtube.com/watch?v=pIpr2R1yzAY