A home loan is one of the biggest financial commitments we will make in our lifetime.

We take it on knowing that we will be paying the money back for a long, long time. And that’s okay. It means that we can live the great Australian dream and ultimately own our own piece of this great southern land.

Interestingly, once people have got a home loan they tend to set and forget. Ask the person down the street what their home loan interest rate is and see what they say. If they can’t tell you, they’re not alone. Surprisingly, many Australian’s can’t either.

For months and months now the official cash rate has been at an all-time low. It’s a far cry from the days of the heady interest rates of the 90s. So what happens when you’re used to paying your regular monthly repayments and rates start to rise? Well, one of the most important things you can do to save yourself financial heartache is to build a buffer into your repayments, so that if rates increase you won’t feel the pain … too much.

When the market starts to talk about the likelihood of interest rate increases, the question of fixed versus variable rates is often raised.

There are of course, pros and cons with both fixed and variable rates, so the decision to go either way should be an informed and considered one.

And the decision is not always black and white. There’s a lot of grey and ultimately, it will depend on your individual circumstances.

Let’s take a look at the two types of rates:

As their name suggests, flexible interest rates fluctuate as the market changes. They offer flexibility – if you are keen to pay off your loan quickly or potentially pay a lump sum, then a variable interest rate is a great option.

On the flipside, if you are looking for peace of mind, a fixed rate might be the way to go. Locking in a rate is perfect if you want to know what your repayments will be for a set period of time.

As with all financial decisions, it’s important to read the fine print. Once you start looking at a fixed rate, other options like flexible repayments and offset accounts may not apply.

And don’t forget to check out the comparison rates. The comparison rate is a more accurate representation of what the loan will cost over the life of the loan. It includes any additional fees and charges and represents these as a simple percentage. So, you may think you are getting a great upfront low rate but it may actually cost you more because of additional fees and charges over the lifetime of the loan. The comparison rate makes it easy for you to compare rates between financial institutions so you are comparing apples with apples or whatever your fruit of choice is.

That’s why it’s really not a question of deciding between a fixed or variable – it’s about doing your homework and then speaking with a home loan specialist who can assess your situation and offer you the best value loan that will tick all your boxes.

The small, small print:

This is general information only and does not take into account your personal circumstances. Before acquiring any financial product, you should check if it is suitable for your needs and where appropriate seek independent advice. Terms and conditions, including fees and charges apply to Bank of us home loan and residential investment loan products. Full details are available on application. All applications are subject to Bank of us’s credit assessment criteria.