Fixed, Variable, and Split Loans: The Pros and Cons

When you're working away from home on a FIFO roster, the last thing you want is uncertainty about your home loan repayments. Understanding the differences between fixed rate, variable rate, and split loan options is crucial for FIFO mobile plant operators looking to achieve home ownership while managing their unique financial circumstances.

Whether you're applying for your first home loan or considering refinancing your current home loan, knowing which home loan product suits your situation can make a significant difference to your financial stability and borrowing capacity.

What is a Fixed Interest Rate Home Loan?

A fixed interest rate home loan locks in your interest rate for a set period, typically between one and five years. During this time, your repayments remain the same regardless of what happens in the broader market.

Key features of fixed rate loans:

• Consistent repayments that don't change during the fixed period
• Protection from interest rate increases
• Certainty for budgeting, which works well with FIFO rosters
• Limited flexibility to make extra repayments (usually capped)
• Break fees may apply if you refinance or sell during the fixed period

For FIFO mobile plant operators, fixed rates offer predictability. When you're managing expenses across multiple locations and dealing with roster changes, knowing exactly what your home loan repayments will be can provide peace of mind.

However, if interest rates drop, you won't benefit from lower repayments until your fixed period ends. You'll also typically have restrictions on accessing a linked offset account or making additional repayments beyond a certain limit.

Understanding Variable Interest Rate Home Loans

Variable home loan rates fluctuate based on market conditions and lender decisions. When the Reserve Bank adjusts the cash rate, lenders often pass these changes onto borrowers with variable rate loans.

Benefits of variable rate loans:

• Flexibility to make unlimited extra repayments
• Access to offset account features to reduce interest charges
• Ability to redraw additional repayments when needed
• Potential to benefit from interest rate decreases
• Portable loan options that move with you if you change properties
• Often come with more home loan features than fixed products

Considerations:

• Repayments can increase if rates rise
• Less certainty for budgeting
• Requires monitoring of current home loan rates

Variable rate loans suit FIFO workers who want flexibility. If you receive bonuses or overtime pay and want to build equity faster by making extra repayments, a variable rate loan gives you that option without restrictions.

The Split Loan Option: Getting Both Worlds

A split loan divides your loan amount between fixed and variable portions. You might choose to fix 50% of your loan and keep 50% variable, or split it in whatever ratio suits your needs.

Why consider a split rate loan:

• Balance between stability and flexibility
• Protect some of your repayments from rate rises while maintaining access to variable loan features
• Make extra repayments on the variable portion while enjoying certainty on the fixed portion
• Access to a mortgage offset account on the variable component
• Diversify your interest rate risk

For example, you might fix $300,000 of a $600,000 owner occupied home loan at 6.2% for three years, while keeping $300,000 variable at 6.5%. This approach means half your repayments stay constant, while you can still make extra repayments on the other half during high-earning periods.

Comparing Home Loan Products: What Matters Most

When you compare rates and home loan packages, consider these factors beyond just the interest rate:

Loan features to evaluate:

1. Offset account availability: A linked offset can significantly reduce your interest charges by offsetting your savings against your loan amount
2. Redraw facilities: Access to extra repayments you've made
3. Interest rate discounts: Some lenders offer rate discount packages for FIFO workers
4. Repayment flexibility: Options for principal and interest or interest only repayments
5. Loan portability: Whether your loan can transfer to a new property
6. Loan to value ratio (LVR) requirements: How much deposit you need
7. Lenders Mortgage Insurance (LMI) costs: Additional costs if your LVR exceeds 80%

Calculating Home Loan Repayments for Different Options

Understanding how different interest rates affect your repayments helps you make informed decisions. For a $500,000 loan amount over 30 years:

• At a fixed interest rate of 6.0%: approximately $2,997 per month
• At a variable interest rate of 6.3%: approximately $3,092 per month
• With a split loan (half at each rate): approximately $3,045 per month

These calculations assume principal and interest repayments. If you're considering interest only loans or want to invest in property, your repayment structure would differ.

Building Equity and Improving Borrowing Capacity

Your choice of loan type affects how quickly you build equity. Variable rate loans with offset accounts and unlimited extra repayments can help you reduce your principal faster, which improves your borrowing capacity for future property purchases.

If you're looking to expand your property portfolio, the equity you've built can serve as security for investment loans. The flexibility of variable or split loans often makes this process more straightforward.

Making Your Decision: Which Loan Type Suits FIFO Workers?

As a FIFO mobile plant operator, your income structure and lifestyle create unique considerations:

Consider fixed rates if:

• You prefer certainty in your financial commitments
• You're concerned about potential rate increases
• You don't anticipate making significant extra repayments
• You need lower repayments locked in for budgeting

Choose variable rates if:

• You want maximum flexibility with repayments
• You plan to use an offset account actively
• You expect to receive irregular bonuses or overtime payments
• You might refinance or sell within a few years

Opt for split loans if:

• You want some protection from rate rises without sacrificing all flexibility
• You're unsure about future rate movements
• You want to test different repayment strategies
• You value both security and opportunity

Access Home Loan Options from Banks and Lenders Across Australia

FIFO workers often face additional scrutiny during the home loan application process. Working with a specialist mortgage broker who understands FIFO income structures can help you access home loan options that other lenders might decline.

Different lenders view FIFO employment differently. Some offer preferential rates or LMI waivers for mining industry workers, while others may require larger deposits or apply loading to your application.

Getting Home Loan Pre-Approval

Before you start house hunting or negotiating on property, getting loan pre-approval shows sellers you're a serious buyer. Pre-approval also helps you understand your borrowing capacity and which home loan features you can access at current home loan rates.

With pre-approval, you can compare different scenarios - fixed versus variable, different loan amounts, and how various interest rate discounts affect your repayments. This information empowers you to make decisions aligned with your long-term financial goals and secure future.

Choosing between fixed, variable, and split loan options depends on your personal circumstances, risk tolerance, and financial objectives. As a FIFO mobile plant operator, you have unique considerations that require tailored advice. Understanding the home loan benefits and limitations of each option positions you to make an informed choice that supports your journey to achieve home ownership.

Call one of our team or book an appointment at a time that works for you. We specialise in helping FIFO workers access suitable home loan products with features that match your lifestyle and financial goals.