If you’re looking for security and predictable loan repayments, a fixed rate structure might be for you
While Australians have traditionally preferred variable interest rate home loans, fixed rate loans offer significant benefits that are worth consideration.
There are several options available – typically from one, three and even five-year periods – for borrowers who want to lock in the rate of their loan.
The main advantage of a fixed rate home loan is the security that comes with knowing exactly what your loan repayments are going to be – month in, month out.
This security can be ideal for investors who need to manage their cash flow carefully, or for home buyers for whom fluctuating repayments can cause unwanted stress. Being able to accurately budget each month can be very appealing.
Borrowers need to think carefully before taking out a fixed rate loan, however, because subsequently changing to a variable interest rate loan ahead of the term agreed can incur significant costs.
Should interest rates drop, you might also find your fixed rate ends up being higher than the variable rate available on other loans.
In addition, many lending institutions do not allow borrowers to make additional repayments on fixed rate loans, so this should be considered if you’re looking to pay your loan off sooner.
Fixed Interest Rates
For borrowers looking for the best of both worlds an option is a split interest home loan.
Part of the loan has a fixed interest rate; the other part is variable and is subject to any changes in the lender’s rates, just like any other variable rate loan.
Naturally, you’ll need to work out with your broker which option suits your personal circumstances.
As one of Australia’s leading mortgage brokers, Choice Home Loans can work with you to determine whether a fixed interest rate home loan is right for you and then to track down a product to meet your needs.