Home loan shock: should you fix your interest rate before hikes hit?

Homeowners with home loans are again facing a familiar question: fix your interest rate now or stay on a variable rate as uncertainty builds.

With global oil prices rising and inflation risks mounting, expectations are growing that interest rates could increase again, putting pressure on monthly bond repayments.

For anyone with a home loan, choosing between a fixed or a variable interest rate will directly impact affordability in the months ahead.

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A fixed home loan rate allows borrowers to lock in a set monthly repayment for a defined period, regardless of interest rate changes.

Financial adviser Samantha Moyana says this offers stability when interest rates are expected to rise.

“Locking in a rate can provide stability… predictable payments help with budgeting, and if rates are expected to rise, fixing can save some money,” she said.

This stability becomes critical when interest rates climb rapidly, as seen during the aggressive hiking cycle between 2022 and 2023, when many homeowners saw their repayments surge.

The trade-off of fixing your home loan

However, fixed home loan rates come with a cost.

Banks typically offer slightly higher fixed rates than current variable rates, meaning homeowners may pay more upfront for that certainty.

There are also potential penalties or fees if borrowers want to exit a fixed-rate agreement early.

Importantly, homeowners on fixed rates do not benefit when interest rates fall.

“Fixing doesn’t mean it’s fixed at the current rate… It’s usually a bit higher,” Moyana said.

Variable rates: flexibility with risk

A variable home loan rate moves in line with the repo rate, meaning repayments rise or fall depending on interest rate decisions.

This can work in a borrower’s favour when rates decline, reducing monthly instalments and freeing up cash.

But the risk is immediate when rates increase.

For homeowners already stretched, even small hikes can significantly raise monthly repayments.

Extra payments can ease pressure

Moyana advises homeowners on variable rates to use any savings from lower interest rates to pay extra into their bond.

Even small additional payments can reduce the total interest paid over time and shorten the loan term.

“Any amount makes a difference… little as it is, you will see the benefits in the long run,” she said.

Interest rate outlook key to decision

The choice between a fixed and a variable rate often depends on the economic environment.

During periods of rapid interest rate increases, fixing can protect homeowners from rising costs.

But when rates are stable or falling, variable rates may offer better value.

With inflation risks linked to rising oil prices now back in focus, homeowners may again need to weigh stability against flexibility.

Experts warn that borrowers should ensure they have enough financial buffer if they remain on a variable rate, especially if interest rates begin climbing again.

For more detailed information, listen to Moyana on 702 using the audio player below: