Wednesday 3rd February 2016

Home Loan Rates - Fixed vs Variable

 
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We know that choosing the right home loan is a big decision. There’s so many lenders and so little time! Not to mention the various extras and add-ons you need to consider. And Interest rates will have a big impact on both the loan and lender you choose.

Interest rates remain a hot topic amongst first home buyers and it's hugely beneficial to know the difference between Fixed and Variable Interest Rates. That’s where we come in. We'll talk you through the process in a language that's easy to understand so you don’t have to sift through pages of financial jargon.

We’ll help you understand the difference between the two types of home loan rates so you can make an informed decision on what's right for you. Each one has it's own pros and cons so it's not as easy as just asking 'which one's better?'

Read on to weigh up both sides so you can commit to the best mortgage for your situation.

Fixed Rates

A Fixed Rate loan is set at a particular interest rate for a defined, agreed period of time. This period of time can span as long as five years, and no matter how interest rates or the economy change during this time, your home loan interest rate will remain stable, fixed and solid. There’s no guess work and you know exactly where you’re at and what your repayments will be.

Variable Rates

A Variable home loan is affected by changes in interest rates, and the interest of your loan will move up or down accordingly. If interest rates drop then good news, so will your loan repayments. If rates increase, then that means bigger monthly repayments for you.

Pros and Cons

There's no right or wrong answer when it comes to your home loan, it's different for everyone and depends on your circumstances. When it comes to fixed rates, you're guaranteed stability over a prolonged period of time. This is great for planning your finances and knowing exactly how much your repayments will be for the foreseeable future. Fixed rates are also a good way to protect yourself from any spikes in the market. If interest rates rise there's a huge amount of comfort in knowing this won't affect you. You can enjoy the security of knowing your finances won't change without any notice.

On the other side of the coin, if interest rates drop while you're under a fixed loan it can be frustrating knowing your financial situation and mortgage repayments can't benefit from the change. Under a fixed term contract you also lose the flexibility of providing additional repayments for your mortgage, should you wish to. Occasionally you'll be able to supply extra repayments, but this often invokes a fee (and you've had enough of those already).

How do I decide?

It's hard to predict how and when interest rates will fluctuate, but if you plan and prepare then there's no reason you can't be ready for the unexpected. If you're after stability and happy with your financial plan then a Fixed Rate loan is definitely a reasonable option (at least in the foreseeable future) but if you're happy with the direction your finances are headed and like to live with flexibility, Variable Rates are for you.

Speak to us and we'll give you the information and planning you need to make an informed and educated decision. Ultimately it's what feels right and comfortable to you and here at Finance 365 we'll support you every step of the way.

Email reception@finance365.com.au or call (08) 6200 0269 to make an appointment.

 

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