24 Oct Fixed Or Variable, Which Home Loan Is Suitable For Me?
One of the most common questions we get to handle when dealing with potential home owners is, which loan option should I go for? Fixed or variable? Both of them are good depending on what your expectations are and they all have their advantages and disadvantages.
What Is A Fixed Rate Home Loan?
Fixed rate home loans are loans where the interest rate applied on the loan remains fixed during the loan’s term. Whether the RBA makes any changes on the cash rate or not, your interest rates remain the same. This results in your monthly loan payment remaining the same throughout the loan term. Whether a fixed rate home loan is the best option for you depends on a number of factors with the key one being the interest rate environment at the time when you sign up for the loan and the duration of the loan.
What Is A Variable Rate Home Loan?
Unlike its fixed rate counterpart, variable rate home loans are greatly affected by any changes made to the interest rate. Consequently, your payments will also vary over the loan term and this may greatly affect your budget in case the rates go up.
So Which Loan Should You Choose Over The Other?
Though fixed rate provides the certainty on monthly repayments, some people argue that going wholly fixed or variable is a big gamble. Here’s a comparison of the benefits of fixed and variable to help you make an informed decision
Fixed Rate Home Loan Benefits
Budgeting: As payments remain constant every month for the duration of the loan, this makes budgeting much easier.
Fixing: One of the biggest benefits of fixing your home loan is the certainty that your monthly repayments will remain constant throughout your loan term. If there is a likelihood that the variable rate will go up in the near future, then fixing your rate is a good benefit.
Benefits of Variable Rate Home Loan
Falling interest rates: Only variable home loans give borrowers the benefit of enjoying low rates when interest rates fall. Choosing a variable rate home loan when the interest rates are low or a possibility of falling is a good decision worth taking.
Good features and flexibility: Most variable home loans come with great features which allow the borrower to repay the loan much faster with more flexible repayment options.
Easier to refinance: If you are planning to refinance your loan at a later date, choosing a variable rate home loan gives you an advantage over the fixed rate interest loan.
Pros Of Fixed Rate Home Loan
Your monthly repayments can’t rise during the loan term
Helps you budget for the future
Good for security
Pros Of Variable Rate Home Loan
You can make additional payments without a penalty
Cheaper and easier to switch to another loan
Flexible loan features
Ability to access extra funds through the redraw facility