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A fixed-rate home loan locks in an interest rate for a specified time, with many borrowers opting for one, three or five-year fixed-rate loans. They’re an extremely popular mortgage loan choice because borrowers can lock in a relatively low rate for a longer time.

If you’re thinking about whether a fixed-rate home loan is right for you, it’s important to understand your financial circumstances and not just focus on the face-value rate. Here, we’ve outlined the pros and cons of a fixed-rate home loan, and whether it could be the right option for you.

Pros of a fixed-rate home loan

Fixed repayments

The first few years of home loan repayments can be extremely stressful. A fixed-term mortgage can take some of the pressure off because you’ll know exactly what your repayments will be over the course of the loan.

Flexible terms

Different lenders will offer varying lengths of fixed-term rates, so you have the freedom to shop around to find the length that suits you best.

Protected from rising interest rates

If there’s a rise in interest rates, you won’t be affected as you’ve locked-in your rate for a set amount of time.

READ MORE: Here's how you can secure the best mortgage rate for your needs

Cons of a fixed rate home loan

Fewer features

When compared to variable-rate mortgages, fixed-rate home loans don’t have features such as the ability to make additional repayments and withdrawals or an offset account.

Additional fees

Early repayment fees and break costs can be significant if you choose to exit your fixed-rate loan before the specified duration.

Can’t benefit from lower interest rates

If interest rates drop while you’re still in your fixed-rate period, you aren’t able to take advantage of this.

READ MORE: Check out the competition in mortgage loans from the different types of lenders here

Which is better: A fixed or variable rate home loan?

There’s no straight answer to this question. For some borrowers, a fixed-rate loan suits their needs, while for others a variable rate loan is the better choice.

Generally speaking, a fixed-rate home loan is suited for borrowers who have a lower risk appetite, in that they value the security of knowing what their repayments will be month after month.

Don’t forget, you do have the option to choose a split loan structure, where part of your loan is variable and the other part is fixed. This is a great option for getting the best out of both loan types with less risk.

Ready to find the best home loan rate for your needs? See how Joust can help here.