Although it is impossible to predict what will happen to the economy and interest rates in the future, it can be useful to understand the benefits and drawbacks of fixed and variable home loans so you can choose the one that may be best for you.
There is no one-size-fits-all answer here. The perfect home loan for you will be determined by your circumstances and preferences.
If you’re debating between fixed and variable interest rates, here’s a quick review of the advantages and disadvantages of each.
Pros and cons of a fixed interest rate
A fixed-rate home loan locks in your interest rate for a set period, often one to five years. Knowing exactly what you need to pay can help with planning and budgeting.
However, one disadvantage of fixed-rate loans is that they can be rigid. Some institutions, for example, may prohibit you from making additional repayments or charge you a fee for doing so.
Similarly, if you find yourself suddenly loaded with cash and able to pay off your loan sooner, or if you need to break the fixed interest period for whatever reason, you may be required to pay a significant break charge.
The benefits and drawbacks of a variable interest rate
Interest rates on variable interest rate home loans can fluctuate depending on the official cash rate set by the Reserve Bank of Australia (RBA) and your lender’s discretion.
Benefits of variable interest rate
- Ability to make additional repayments (uncapped).
- There are no break or exit fees.
- Interest payments will be reduced if interest rates fall in your favor.
- Possible to open offset and redraw accounts
- Switching loans is easier with variable-rate mortgage
Drawbacks of variable interest rate
- Rates of interest could skyrocket.
- Your payments will follow accordingly.
Many first-time home buyers prefer fixed rates because the fixed cost of the repayments gives their household financial stability. As it does not permit additional repayments and remains unchanged if the RBA lowers interest rates, it might not be the best choice for your specific mortgage needs.
To discover which type of house loan is appropriate for your financial position, it is always advisable to speak with a mortgage specialist.
FAQs
Got questions? Find answers to some of the most commonly asked questions about our financial solutions, processes, and services to help you make informed decisions.
LMI is a third-party insurance premium payable by you as the borrower, to protect the lender against the potential loss of money if the borrower is unable to repay the home loan. Generally, an application with a Loan-to-Value Ratio (LVR) of 80% or more may result in the borrower having to pay Lender’s Mortgage Insurance.
Extra payment is an excellent feature of a good mortgage deal. Here, your lender lets you make lump-sum additional payments along with your regular monthly payment. Making extra payments allows you to shorten the length of time you are paying your mortgage. Since your balance is being paid off faster, you will also have fewer total payments to make, thus lowering your interest. At Reliiance Financial Solutions, we can help you find the most suitable mortgage deal for you. We have a range of lenders that allow you to make as many extra repayments as you want, whenever you want, without attracting any penalties.
Stamp Duty is a government tax imposed on contracts, with the amount usually calculated as a percentage of the contract value. In layman’s terms, it is the tax charged for your legal documents to be ‘stamped’.
If you are planning to buy a property, it’s crucial to factor your State’s Stamp Duty into your budget.Chances are, based on your circumstances and state of domicile, you might be able to obtain a stamp duty exemption, or concessions (discount) against the purchase of your first home. Stamp duty laws get changed often, so be sure to check your State Government’s website for the most up-to-date information.
Did you know that some lenders would allow you to cash out any extra repayment you made whenever you need the money? You read that right. This useful mortgage feature is called “redraw facility”. You can withdraw any extra repayments or lump sum payments you make over the life of the loan. At Reliiance Financial Solutions, we will explain all mortgage products to you, including those which allow you to the redraw option.
Testimonials
Discover how we’ve helped our clients navigate their financial journeys with personalized solutions. Read their stories of success and empowerment below.
A 5-STAR RATED FINANCIAL SOLUTIONS PROVIDER BY OUR CLIENTS
At Reliiance Financial Solutions, we have been privileged to have worked with hundreds of remarkable individuals and families.
Very few things come close to receiving their genuine appreciation of our services. All we can say in return is – the pleasure was all ours.
It is also our pleasure to share some client testimonials with you. Please click on Video Testimonials to view them all. Use the buttons at the bottom of the screen to navigate through the videos.
