With record low interest rates a popular topic of conversation, many clients are asking us the question: Do I fix my home loan or stay with a variable rate?
When it comes to your home loan, it is important to have a clear understanding of the options available to you. Any decision you make should be given plenty of thought and discussed with your trusted finance expert.
Both variable rate and fixed rate home loans have their advantages and disadvantages. We've compared the two types of loans for you so you can get a basic idea of whether a fixed loan or variable loan may be best suitable for you.
Fixed rate loans.
Consistency. A fixed rate loans is when the borrower can lock in to an agreed fixed interest rate for a period of time. This is generally for a term of 1-5 years. This means if interest rates were to increase during the fixed period, your rate will stay the same.
Many home owners like the consistency of a fixed rate loan. It can make budgeting easier as you will have a clear idea of how much your repayments will be for a set time. However, if interest rates were to decrease, the rate on your loan will remain the same. This could make it difficult for you to take advantage of potential savings.
Some fixed loans may also limit the flexibility of being able to make extra repayments on your loan and may have termination fees if you choose to switch your loan before the end of its term.
Variable rate loans.
Flexibility. With a variable rate home loan, the interest rate will fluctuate from time to time, thereby resulting in increases or decreases in your repayments. Generally speaking, a variable interest rate product will be a little more flexible in terms of features than with a fixed rate.
This is especially useful with loans, as you’ll usually get full use of helpful features like extra repayments, redraw facility and an offset account. Home owners often enjoy the saving benefits of variable rate loans when interest rates decrease however, home owners should also be prepared for interest rate rises.
If you’re not sure you want to commit to a variable rate but don’t want to lock your whole loan into a fixed rate, you might have the option of choosing a split rate loan. This means that part of the interest on your loan will be fixed at a certain rate, while the other part will work on a variable interest rate.
It's not just about rates.
It is important not to compare a home loan solely on interest rates. Be aware of other fees including up-front fees and ongoing monthly fees. You should also check to ensure your home loan will have features you can take advantage of such as an offset account or redraw facility.
It's important to speak to your Bank or trusted mortgage expert to determine which home loan and features would best suit your situation. Be open and honest about what's important to you.
Should I review my loan?
Many home owners pay much more than they need to be by not reviewing their home loan simply because they feel it's all 'too hard'.
It's easy for our home loan experts to review your loan and compare your options without making any finance enquiries or affecting your credit score. If you haven’t reviewed your home loan within 12 months, you could be missing out on big savings.
Our team is here to help, simply request your free appointment online.