March 24, 2016
With so much talk around the property market, low interest rates and housing bubbles, one of the most common questions currently on the minds of those in the home loan market is “should I go fixed or variable”?
Before even beginning to tackle such a question, it’s important to at least get an understanding of what this really means, then weigh up the pros & cons.
A fixed interest rate means that the rate remains the same for the term of the fixed period. A variable interest rate means that the rate fluctuates as the market interest rate changes. So which one should I go with?
Choosing whether to go Fixed or Variable (or a combination of the two) is kind of like choosing which restaurant to eat at, or which type of phone to buy - there is no single right answer and what works for one person, might not suit another. Each has good and bad points and understanding what’s right for you is the main aim.
A fixed rate can offer you stability, predictability and certainty in your loan repayments that can be handy when you’re managing a budget tightly, or perhaps if you’re just more risk-averse. By committing to a fixed rate for a period of time (typically between three to five years on average), it can enable more accurate planning & budgeting, giving a greater sense of comfort and control.
The flip side to this naturally is that you can find yourself locked into an interest rate that is higher than the market should a drop rates occur. Getting out of a fixed rate term also doesn’t come cheap, as lenders generally apportion penalties for breaking fixed interest rate arrangements.
Choosing a variable rate loan is in many ways like travelling overseas. You have all the flexibility and freedom in the world, you’re out there having fun and seemingly can do as you please – until the market turns.
A variable loan allows you to take advantage of the movement in the market (particularly downward) to enjoy low rates while they remain low, as well as allowing you to access key loan features and potentially rate discounts too.
So once again - which one should I choose?
Well at the risk of sounding very “grey”, it really depends on you. It may depend on your stage in life, on your financial strategy, your employment stability, your family status, or perhaps even your personality.
So if you find yourself not sure of which way to go then you can certainly talk things through further with a lending professional and if you still can’t decide between Fixed or Variable, then why decide at all – have both!
For more information or to discuss your circumstances, give me a call on 0417 163 814 or contact me at firstname.lastname@example.org