Fixed Rate Loans Variable Rate

Fixed vs Variable

What are the pros and cons of using these two loan types? It seems to me that people are easily sucked into the lower rate provided by the Fixed rate loans right now. So, what is the catch?

Generally, Fixed rate loans have a limit on how much extra you can pay, so if you are able to make extra repayments, or you want to make use of an offset account, then you would need to read the contract details to see whether you can do these things. There may be a limit on how much extra you can repay, or there may be a penalty if you pay too much or too quickly.

The big benefit of a Fixed rate is if you want certainty of how much you will need to pay each month. From a budgetting perspective, this can be useful.

Variable rate loans often allow you to pay extra, or to use an offset account (to “offset” your savings to lower the loan principal for the purpose of calculating interest on the loan). Quite often the interest saved by using either of these two options means that the super low rate of the Fixed loan does not look that super anymore.

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