Choosing the right home loan with the best interest rates can help you save thousands of dollars. It is so important to concentrate on comparing and contrasting home loans and rates to determine which one meets your individual requirements and needs before making your decision.
Here are the main differences between fixed and variable rates….
Fixed Rate Home Loans
A fixed home loan rate means you can establish a certain fixed interest rate. This means whether the interest rate falls or rises, you will have to pay the established fixed rate. Let’s see what are the main advantages to opting for a fixed rate home loan.
• You can benefit from knowing exactly the repayments you will have to make, as well as the possibility of establishing your interest rate for a longer amount of time.
• Opting for fixed rate home loan will make it easier for you to budget your future finances – you know the exact sum you need to pay.
• If the rate rises above your paying interest, that won’t affect you in any way – you’ll be paying the fixed rate, which is less than the variable rate, so that’s a plus.
Now let’s take a look at the main disadvantages that come with choosing a fixed rate home loan.
• If the interest rate decreases, you will be paying your fixed rate that is more than the variable rate. Thus, you won’t be able to take advantage of the rate decrease.
• You won’t be able to benefit from making unlimited repayments. Most banks have a capped limit of extra repayments that you can make to the fixed loan. Still, this might be a viable option if you choose to pay an additional fee.
• In case you decide to alter or pay off your fixed home loan, you will be required to pay for additional break fees and penalties. This can be thousands of $$$$$
Variable Rate Home Loans
A variable rate, as its name already indicates, is the rate that may either rise or drop during the period of the loan, depending on a wide range of factors such as the official interest rate. This official interest rate is established by the Reserve Bank of Australia. So, the main disadvantage that comes with this option is that the rates fluctuate, and they might increase month by month. So, you don’t have any certainty regarding the sum of money you have to pay every month.
But what are the benefits?
• You can benefit from a wide range of extra options such as flexibility, repayment holidays and introductory rates.
• If you have the ability to make extra repayments that will shorten the life of the loan, you can opt to do that, without having to pay for any additional fees.
• You have the redraw option, be it the case you need money for emergencies/house repairs/bills/holiday
• The savings in your transaction account can contribute to decreasing your loan balance. This is what Banks call an “Offset account”
I have had clients in the past do both in a loan split, part Fixed and part Variable. This can also be helpful if you are unsure on what you will be doing in the near future of your home.
There are many reason in which way you choose but the best option before you do anything is to speak to us at Blue Wave Property Strategies to discuss your options and help you find the right loan that suits your needs.
We are here to chat about anything finance – we are not financial planners and wont give you advice in that area but we can definitely have a look at your current home loans and make sure you are getting the best possible deal. We are 100% confidential and you can be assured anything you discuss with us stays that way! Let us help you save some cash today!
Call Nikki today on 0400 124 229 or drop us an email HERE