Understanding fixed rate home loans
By | 7th May 18

Understanding the differences between a fixed or variable rate will help you choose the right loan for you

Navigating the world of home loans for the first time? Understanding the differences between a fixed or variable rate will help you choose the right loan for you.

What is a fixed home loan?

A fixed home loan means that the amount you are charged for your loan repayments will be the same for however long the fixed rate period is. Do not be fooled by fancy advertising, as a fixed rate does not stay the same for the entirety of the loan period. It is quite common for fixed rates to span between 1-5 years and then your loan will switch to a variable rate unless you opt into another fixed term contract.

We have seen an increase in popularity with fixed home loans which are the result of record low interest rates over the past few years. Historically in Australia, variable rates have been more popular so it will be interesting to see how this balances out if the rates rise in the near future.

How are fixed home loan rates calculated?

Fixed home loan rates are priced taking into consideration any potential short to medium term adjustments to the cash rate. For example, if banks are expecting future falls in the official cash rate, a fixed home loan rate may be priced accordingly, being priced cheaper than other variable rates.

So should I fix my loan?

There’s no simple answer to this as it is based solely on your personal circumstances. We suggest weighing up the pros and cons and ensuring you speak to your bank as well as mortgage broker so you are aware of the various packages out there. Locking in a rate provides certainty for a period of time, which can be great if you are a First Home Buyer. The fixed rate may assist with your budget and your expenditure.

On the other side, some people view fixed rates as a disadvantage because there is a chance that the interest rates will fall. There’s also the possibility that if you wish to break your contract there is a lack of flexibility. In such a case, a break fee will be charged so weigh up your financial situation carefully.

If you are looking for a great mortgage broker or more detailed advice to suit your personal circumstances, get in touch with us with your free no obligation consultation! Email us to book an appointment today: buyer@advantageproperty.com.au