There are many factors to consider when applying for a home loan, and one of the most commonly asked questions is ‘Should I choose a fixed or variable rate home loan?’
Whilst there is no easy answer to this, there are certain advantages and disadvantages to each of these loan types. Take a look at the following short video, as Mortgage Choice chats to The West Real Estate Program about the pros and cons of fixed vs variable rate home loans:
What is the difference between fixed and variable rate home loans?
- Provides more certainty as your repayments remain the same each month, making it easier to balance the budget.
- Your rate is not affected by interest rate rises
- If interest rates drop, your repayments will remain the same as you do not benefit from changes in interest rates
- Many fixed rate loans do not allow extra repayments, or you may be charged a fee for making extra repayments
- Break costs can be high if you decide to refinance your fixed rate home loan
- You can take advantage of interest rate decreases, as you will benefit from lower repayments
- You can make additional repayments on your home loan, usually at no extra cost
- There is a lack of certainty as your repayments can change with rate changes
- If interest rates rise, your repayments will increase and this could put you under increased financial pressure
As you can see, both variable and fixed rate loans have advantages and disadvantages. Some people choose to hedge their bets and split their home loan by fixing a portion of the loan amount.
Your local Perth mortgage broker can help you choose the best option for your individual needs. If you would like to find out more, please contact us on (08) 9277 9888 to book an appointment today.