Fixed or Variable—which is best for me?

In the great debate between fixed and variable rate loans there are those that are firmly planted in the always go variable and those that believe fixed rates are the only option.

Most borrowers have no idea which one to go with. Proponents of variable rates value flexibility and extra payments but those with fixed rate loans want their rate protected against rises.

There is no right or wrong answer and the correct answer always depends on your situation.

If you intend on selling your home soon, refinancing the loan, making extra repayments, subdividing or simply changing the name to a married/maiden name then you should consider going variable.

If you have no plans for any of the above and just want to ensure your repayments don’t change suddenly on you, then you should consider a fixed rate.

Some fixed rate loans allow extra repayments and some even have an offset facility, so making extra/lump sum payments is still a possibility.

Interestingly, 80% of borrowers who choose a fixed rate loan are worse off at the end of their term had they of chosen variable. Remember, the banks are very good at predicting interest rates and even better at making this work in their favour not yours.

So next time you choose between fixed or variable, make sure you choose for the right reasons, not because one is cheaper than the other.

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