Pets, leaking taps, home loans. They’ve all got one thing in common: should they be fixed or not?
Buying a house is likely one of the biggest financial decisions you’ll ever make. The second? How to organise your home loan.
Like everything in life, the answer will depend on your situation.
There are pros and cons of both options that will impact how you plan your yearly budget, your ability to make additional repayments, and whether you’ll benefit or suffer from a rate change.
Fixing the rate of your home
A fixed home loan has an interest rate that is fixed at the time of purchase and won’t change for a set period – usually one, three or five years.
Having a fixed home loan means that rate rises won’t affect you.
So, while others are grumbling about rising interest rates or waiting white-knuckled for the next announcement by the Reserve Bank, you can be content knowing you won’t be affected.
Selecting a fixed home loan can give you a sense of clarity and certainty, and as such, will help you budget and plan ahead.
You might prefer a fixed home loan rate if you:
- have reason to suspect that interest rates will rise in future
- are comfortable with the interest rate you are committing to pay
- prefer to be able to accurately plan your finances in the short and mid-term
- are concerned that you would be unable to make your repayments if rates were to rise.
Variable home loan rate
A variable home loan has an interest rate that changes. Instead of staying at a certain fixed level, the rate will move according to market interest rates.
As a result, your repayments will either rise, fall, or fluctuate over the term of your loan. This means that sometimes you’ll pay more than a fixed loan, while other times you’ll pay less.
Variable loans can come with advantages linked to their flexibility. For example, it can be cheaper and easier to switch loans if you find a better deal elsewhere than it would be if you had a fixed loan.
Often you’ll also be able to make extra repayments on your loan at no additional cost, which can help you pay off your loan more quickly.
You might prefer a variable home loan rate if you:
- have reason to suspect interest rates will fall over time
- are unsure about interest rate movements and would prefer to go with market rates
- are confident you could manage a rate rise
- don’t mind having some unpredictability in your financial planning.
Still on the fence?
With so much at stake it can be difficult to decide on the best option.
The solution? Come and have a chat with us.
Discussing your individual circumstances and financial goals can help you decide whether a fixed or variable loan is right for you.
We’ll step you through your obligations under each scenario, as well as help you determine what’s feasible and what’s not.
Then all you’ll have to worry about is financial decision number one: locking down the purchase of your dream home.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
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