A variable interest rate loan has its interest rate affected by RBA rate changes and the decisions of lenders. Borrowers cannot control a variable interest rate, which can rise and fall depending on market conditions.
So which loan is the better option? Well that depends on your personal circumstances and what you think the loan home market is going in terms of interest rates. Home loans are linked to bank rates and loan rates move with the markets.
A fixed rate loan allows a borrower to lock in an interest rate for a certain period of years, depending the type of loan they choose. This type of loan is not affected by interest rate changes or the decisions of lenders.
When your interest rate is fixed there are no surprises when you get your billing statement each month.
If you are the nervous type or you cannot afford to see your loans rates go up in percentage terms then you might want to consider fixing your mortgage loan.
Fixed home rates are also handy if you are thinking about selling your house in the future. You get an idea of exactly how long you have to live there before you turn a profit because you will know how much principal you have to play each month.
In a down market, you can get an interest rate that you may not see again for another decade but you should always get independent advice before making a financial decision. Apart from the obvious benefit of knowing what your repayments will be, you are effectively betting that interest rate changes will not leave you worse off down the track.
With most fixed loans, penalties apply if you want to refinance or pay off the mortgage altogether.
Having a fixed rate can help you budget better, allows you to calculate when you will have enough equity to sell the house and enables owners of rental properties to calculate monthly profits.
Overall, there are many more advantages to a loan with a fixed rate as opposed to a loan with a variable rate, but make sure you get advice for your own personal circumstances.
Remember, most fixed loans have penalties if you want to refinance or pay off the mortgage early. At loans.com.au, we can help with your home loan inquiries so that you make the right decision. Give us a call now on 13 10 90 or check out our loan rates online.
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