With interest rates currently at historical lows, the question on everyone’s mind is whether it is best to go with a fixed rate on their home loan, or part fixed and variable. There are pros and cons associated with both options, but I’ll try to shed some light on the matter for you.
Deciding between a fixed or variable rate home loan really comes down to personal preference – there is no right or wrong decision. Interest rates are currently sitting at historically low levels across all product types, so any decision you make will not be a bad one.
That said, before deciding whether or not you would like a fixed rate, variable rate or split rate mortgage, it is a good idea to weigh up the pros and cons associated with each option.
There are several advantages and disadvantages associated with each option. For example, fixing your home loan can help to make budgeting easier as you’ll know exactly what your mortgage repayments will be. In addition, any future rate rises (that occur within your fixed rate period) won’t affect you or your loan repayments.
Although, a disadvantage of fixing your home loan could be any break fees associated with your loan. If you were to change your mind or want to exit your fixed rate home loan before the fixed rate period has come to an end, you could be required to pay break fees. In addition, fixed rates are generally less flexible than variable rate products, as such, you may not be able to make additional loan repayments. Finally, if rates were to drop further during your fixed rate term, your home loan interest rate will not drop.
Similarly, there are many pros and cons associated with variable rate mortgages. If rates go up, as they will do eventually, your mortgage interest rate will rise too. As a result, budgeting with a variable rate home loan can become difficult as the mortgage repayments are never guaranteed to stay the same.
If choosing between a fixed and variable rate home becomes too difficult, another option to consider could be to split your mortgage and have part fixed and part variable. Some people will fix 50 per cent of their loan and keep 50 per cent as variable in order to manage some of the risk of interest rate rises.
All that said, when searching for the perfect home loan, rates aren’t everything. While you want your home loan interest rate to be competitive, you also need your mortgage to be flexible and cater to your unique needs.
Be sure to take all of your needs, wants and goals for the short and long term into account. The decision should come down to your motivations for buying, repayment strategy and intentions for the future.
For more information contact Richard Windeyer on 1800 01LOAN.