A fixed interest rate loan is a loan where the interest rate doesn’t fluctuate during the fixed rate period of the loan.
This allows the borrower to accurately predict their future payments.
Variable rate loans, by contrast, change over time in line with changes in the RBA cash rate or other factors such as the cost of funds to the banks.
The choice between fixed and variable rates depends on both personal factors such as the borrower’s income, employment status and surplus cash as well as market factors such as the interest rate climate and whether interest rates are moving up or down..
A borrower will more likley opt for a fixed interest rate if they are concerned that rates will be going up and if they are a more risk-averse investor.« Back to Glossary Index