Fixed vs Variable - Which home loan rate is right for you?
Oct 27, 2016
A lot goes into comparing home loans. Just because you’ve decided on a lender, doesn’t mean the decisions stop there. You still need to work out the finer details of your loan, including whether you choose a fixed rate or a variable rate. Choice Home Loans explains the difference between a fixed and a variable home loan structure to help you make the right decision.
The difference between a fixed rate and a variable rate
The main difference between fixed and variable home loans is that under a fixed rate, you repay the same amount every month during the fixed period. In contrast, variable home loans mean your repayments can change from month to month, which usually happens if the Reserve Bank (RBA) adjusts interest rates, but can occur whenever your lender decides.
The benefits of fixed home loans
A fixed home loan gives you the stability of set monthly repayments, so you can plan your budget. This also puts you in a more stable financial position if the official interest rate goes up, as your repayment amounts will stay the same.
The benefits of variable home loans
If interest rates go down, variable home loan customers can benefit, as your lender’s rates will often change when the RBA rates change. This is a big reason why many borrowers choose this type of loan.
Paying off your home loan earlier
Variable home loans typically offer better flexibility, allowing you to repay your loan in full, without penalties.
Fixed home loans might not allow you to make extra repayments, or lenders may charge you a fee if you do make any extra repayments.
What to look out for
An unexpected rate rise is always a risk with variable home loans, which means you might have to be more careful with your budgeting. On the other hand, fixed rates are typically set for only for a few years at a time, meaning you’re resetting your repayments regularly.
Splitting your home loan rate packages
Some lenders offer split home loans, giving you the option of splitting your home loan between fixed and variable rate packages. The advantage of this type of home loan rate is that it hedges your repayments against either a rise or a fall in interest rates, but it also means you might not fully enjoy the benefits of either home loan rate package.
Watch out for additional fees, too, as many lenders treat split loans as two separate loans, and charge fees on both.
Get the right advice
While we can’t predict how interest rates might move, Choice Home Loans’ qualified mortgage brokers can offer you a range of fixed and variable home loan rate deals, and help tailor a package to suit your needs. As your home loan partner, a Choice Home Loans mortgage broker can help you understand how to navigate the home loan market and make fixed or variable home loan rates work for you.
Contact a Choice Home Loans broker
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