Fixed vs. Variable Home Loans

If you’re thinking about purchasing your first home, an additional investment property or want to refinance an existing home loan, you may be considering whether you should opt for a fixed or variable home loan. There are a multitude of factors to consider. It’s very difficult to predict what might happen to interest rates and the economy in the future.

You should gain as much information as possible on the benefits and risks of both fixed and variable home loans to ensure your choice is well informed. Below we look at the advantages and disadvantages of both.

Fixed Home Loans

Fixed home loans have an interest rate that is fixed for a set period of time, generally one, three or five years. One the fixed rate term is over, the loan will switch to the variable rate offered by the lender.

When lenders fix their rates, they try to predict how the official interest rate might move. If the rate is expected to rise, they may fix a rate higher than their variable rate and vice versa. This is not a given however, with more lenders than ever before acting independently of the RBNZ.


  • Budgeting – Fixed home loans are easier to budget for as you know exactly how much your repayments are.
  • Security – You’re not vulnerable to sudden rate changes, ensuring you can afford the loan and meet repayments.


  • Rate drops – If the interest rate falls below your fixed rates, it will be frustrating to have to pay more and miss out on the rate drop.
  • Break fees – Fixed rate loans can have a break fee is you change the terms of your loan or sell the property.

Variable Home Loans

Variable home loans have rates that fluctuate similarly to RBNZ interest rates, shifting based on funding cost for the lender and the current economic climate. Having a variable home loan is great when interest rates are expected to fall.

A variable home loan offers a variety of benefits, including:

  • Flexibility – These home loans tend to come with more features such as a redraw facility and the ability to break or refinance the loan without significant additional costs.
  • Extra repayments – Unlike most fixed rate home loans, you can make extra repayments at no additional cost.

Disadvantages include:

  • Rate hikes – It can be stressful and financially damaging if the interest rate rises suddenly and significantly.
  • Uncertainty – You can be less sure when it comes to planning and budgeting for your monthly home loan repayments.

How to Choose the Right Home Loan

When deciding how you should structure your home loan, you should consider what the current interest rate is and what loan features you want to be able to use. Another choice is to split the loan, meaning you fix part of your loan and keep the rest on a variable rate. This allows you to manage some of the risk of a variable loan while still accessing flexible loan options.

Contact Mortgage Masters – Independent Brokers in Auckland

Mortgage Masters are your independent mortgage brokers in Auckland, servicing the community in home loans since 1998 to find our clients the best deal on the market. If you need tailored financial advice or helping finding the right home loan for your needs, please get in touch with our team today.

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