One of the major choices to be made when choosing a home loan or a loan on a residential investment property is whether to take a variable interest rate or a fixed interest rate.
Here is an explanation of each so that you may decide which is right for you!
A fixed interest rate will not change during the fixed period. During the fixed period the borrower knows their repayments will remain unchanged. A fixed rate loan is also advantageous if variable interest rates rise. When variable interest rates rise a borrower with a fixed interest rate is relatively better off because their rate will remain unchanged.
Conversely if interest rates fall a borrower with a fixed interest rate is relatively worse off because they do not benefit from the fall in variable rates.
A variable home loan interest rate should move up and down with market interest rates. (based on the current Prime Rate). Home loans with a variable interest rate usually have the highest repayment flexibility.
The Fixed or Variable Interest Rate Simulator allows the borrower to analyse the choice of a fixed or variable rate by modelling changes in the variable interest rate and comparing the amount repaid during the period and the outstanding loan balance at the end of the period.
Sourced from, http://www.yourmortgage.com.au/calculators/fixed_variable/