Variable Rate vs. Fixed Rate Loans
What’s the difference? Which is best for you?
Of course it all depends on your personal financial situation, but there are some major differences between the two. A variable rate home loan changes its interest rate with the market conditions, while a fixed rate can be locked in for a certain period of time.
When you first apply, variable rate mortgages generally have a lower interest rate, because fixed rate loans involve a greater risk for banks. This can be good or bad, depending on what happens with the economy and interest rates. If you have a variable rate home loan and interest rates go up, you may be worse off than if you had gotten fixed rate finance. If interest rates stay the same or go down, you are generally better off with a variable rate. It can be hard to know what’s going to happen with the market, so come and get some advice from our Perth mortgage brokers.
What are some of the issues with variable rate home loans?
One of the biggest issues with variable rate mortgages is that they can make it hard to budget. Because interest rates change on a monthly basis, your payments can go up or down on a regular basis. With this level of uncertainty, it is good to have some extra cash just in case your repayments go up.
Variable rate finance is much more flexible and there are many features that aren’t available with fixed rate home loans.
Variable rate mortgages generally allow you to make unlimited extra repayments and even redraw these extra payments if necessary. They also often allow 100% offset accounts for you to keep your extra money. Variable rate loans also don’t have the break frees that some fixed rate loans have if you decide to sell your house or change your mortgage. Some banks allow their customers to have a repayment holiday, which means that you can skip your repayments for a period of time if you are out of work or suffer an illness. This is normally not available with fixed rate loans.\
Split rate mortgages
Some financial institutions will even offer you the choice of splitting your mortgage between fixed rate and variable rate. To control some of the risk, you could potentially set up half of the loan as fixed and half as variable. This structure can give you a nice middle ground between the two finance types, so that you don’t have to stress too much when interest rates change.
If you are looking at getting a mortgage or changing financial institutions and you’re in Perth, come down to Mortgage Hero and have a talk with one of our qualified brokers. We can simplify things for you and help you to figure out whether a variable home loan is the best choice for you. We have years of experience and information from all of the major lenders. We can help you narrow down the right deals and help to negotiate a better rate. At Mortgage Hero, we don’t just find you the best product – we also help you with your paperwork and explain the entire process. So, if you want a broker who offers the full range of services, come and see us.