A fixed rate loan offers predictable mortgage repayments because the interest rate is locked-in for an agreed period of time. The rate is not affected by economic or financial factors which could cause your lender to change their variable rate. This makes your household budgeting a lot easier.
However, when the variable interest rate goes down, you won’t get savings. Fixed rate loans also don’t come with an offset redraw facility and you can’t make additional repayments. If you decide to terminate the fixed rate loan during the fixed period you will need to pay penalties which can be substantial. Once the fixed rate period ends, your interest rate reverts to a variable rate loan.
With a variable rate loan, your interest rate can go up and down according to various factors. This means your repayments can increase or decrease over the life of your loan.
On the upside, variable rate loans offer more flexible features such as the ability to access your redraw offset facility and make additional repayments without any penalty. You will enjoy lower repayments if the interest rate decreases, but you also have the risk of an increased repayment if interest rates rise.
If you’re torn between the two interest rate types, a split rate loan can be an ideal choice. With a split rate loan you can fix one portion of your loan, and the other portion can be variable. How you wish to split your loan is entirely your decision.
For example, you have a home loan balance of $350,000. You decide to split your loan by 20/80 then 80% or $280,000 will be variable and the remaining 20% or $70,000 will be fixed for a time.
Splitting your home loan lets you reap the benefits of a variable rate where you can make additional repayments and get access to your offset redraw facility. It allows you to minimise the risk of increased repayments by fixing a portion of your loan.
A split rate facility can be added to your existing or new loan product. You can ask our lending specialist today to add this loan feature so you can get the best of both worlds.
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