With a variable rate home loan, your repayments can be affected by your interest rate going up or down when the Reserve Bank changes the cash rate nationally.

Variable home loans suit borrowers who want flexibility such as the ability to make extra repayments and who aren’t concerned by the possibility of their interest rate going up or down over the course of the loan.

A fixed rate means that your repayments are locked in for a fixed term (usually 1 – 5 years). At the end of the fixed term you will get the option to refix your loan at a new market rate or switch to a variable rate if you haven’t finished paying off the loan.

One of the benefits to a fixed rate home loan is that budgeting stays pretty simple as your repayments are fixed for the life of the loan. The risk here is that you will not benefit from any rate drops but you will also not suffer any rate increases either.

Fixed rate home loans can also be less flexible in terms of making extra repayments to pay off your loan quicker.

A split rate home loan is when your lender splits your home loan so that a portion of the borrowed amount is on a variable rate and the remainder is on a fixed rate.

This is a popular loan option as borrowers have the flexibility to make extra repayments and redraw on the variable portion of the loan but are less exposed to rate increases and budgeting uncertainty by having part of the loan fixed.

The best of both worlds!