A fixed rate gives you one locked-in interest rate for an agreed loan term. This term can be from one year up to five years. You know the interest rate will not change and neither will the repayment amount during the fixed rate term.

This can make budgeting much easier, as you know exactly how much you have to pay out each month, irrespective of interest rate movements.

However, when interest rates drop, your repayment will remain the same. So if variable rates drop below the interest rate at which you’ve fixed your loan, your repayments would be higher than they would be if you had a variable rate loan.

Variable rates are about flexibility. With a variable interest rate, your home loan repayments will reduce when interest rates go down.

Alternatively, you may be able to keep your monthly repayments the same, helping you pay off your loan sooner, and saving money over the life of the loan.

The flip side of a variable rate is that if interest rates increase, so do your home loan repayments. So ask yourself – are you prepared if interest rates increase by 0.5%, 1% or 2%? Could you still comfortably make your repayments based on your income?