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Fixed Rate or Variable Rate? Which Home Loan is Right for You?

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Fixed Rate or Variable Rate? This is probably one of the biggest decisions you’ll make when considering your choice of home loan. Choosing between fixed & variable is a difficult choice and therefore, it’s important to gain a strong understanding of how each type of mortgage could affect you.

The journey to securing your home loan is a winding one, regardless you’re an experienced investor or a first time buyer. You’ll probably take some wrong paths along the way. However, with some thorough research and perhaps getting some guidance from a professional, you’ll get a desired home loan with your personal circumstances and preferences.

Both loans have their pros and cons, and if you’re weighing up between both the options, here’s a short overview of the few pros and cons of each.

1) Fixed Interest Rate
  • Pros: The main benefit of fixed rate home loan is the greater sense of reliability that it provides. The interest rate on your mortgage is locked for a specific period which means that any change in the interest rates shall not affect your repayments. It also helps you to make your budgeting easier as you know exactly what you’re repayments will be so that you can plan ahead for your financial goals.
  •  Cons: A potential downside of fixed rate home loan is its inflexibility. No benefit from a drop in interest rates in cases where your fixed rate is more than the variable rate. Some lenders may even prevent you from making extra repayments, or charge you a fee for it. In addition, if you decide to sell your home within your mortgage term or make adjustments to your loan, you will have to pay expensive break fees.
2) Variable Interest Rate
  • Pros: Most of the people in Australia choose to finance their home with variable home loans largely due to the greater number of options & flexibility that it offers. Extra payments are usually allowed at no extra cost which in return helps you save on interest and also helps you pay off your loan faster. It also helps you greater flexibility in terms of switching loans if you find a better deal elsewhere.
  • Cons: The main disadvantage of variable home loans is its uncertainty. Loan payments increases with increase in interest rates. Also due to fluctuating interest rates, it becomes difficult to plan for your financial goals.

Which Home Loan is Right for You?

A number of experts have their opinion so as to which is a better option of the two. However, there’s no one-size-fits-all solution here. What is right for one buyer may not necessarily be the best option for another. You should consider factors like your income stream, financial goals & flexibility into account before choosing your right home loan.

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