What are they?
A fixed rate mortgage locks in the interest rate on a home loan at a certain rate for an agreed term: from one to 15 years.
A variable rate home loan - sometimes called a standard variable rate home loan - the interest rate you are charged can go up or down at any time during the course of the loan, potentially changing your repayments.
With a split loan, part of your loan is locked in at a fixed rate, and part is variable.
What are the pros and cons?
With fixed rate home loans, setting your interest rate gives you certainty about how much your repayments will be. Regardless of interest rates going up or down, yours will stay the same for the agreed period.
This means you can budget ahead. For first time buyers, knowing exactly how much you will have to pay out on a regular basis may allow you to better plan your cash flow and lifestyle.
While fixed rate mortgages provide certainty, they are usually not as flexible as variable rate home loans. So if you want to make extra repayments, redraw your additional repayments or have the flexibility to repay your loan earlier than scheduled, you may be better suited to a variable rate loan.
Variable rate home loans can provide great flexibility to meet your changing needs over time. If you come into some money, such as a bonus, you may find yourself with the means to make extra repayments to your mortgage.
A variable rate loan could also give you the ability to redraw your extra repayments if you need them for renovations, to cover unexpected bills or simply for a rainy day. You could also use your additional repayments down the track, to upgrade your home or purchase an investment property.
A variable rate mortgage also means you could be able to pay off your loan sooner. Some variable rate loans allow you to make unlimited extra repayments, so you could pay off your loan faster
How do I choose?
To decide between a fixed and variable rate home loan, it’s best to look at your own personal circumstances and decide which type of loan suits you. It’s all about deciding what you prefer most - certainty or flexibility.
A split loan can give you the advantages of both types of loan: part of your loan is fixed, giving you certainty about repayments, and part is variable, giving you flexibility. How you split the loan - 50-50 or otherwise - is up to you.
Lastly, even if you end up on a fixed loan or a variable loan and your circumstances change, you have options, talk to us at any time for obligation free advice.
Thinking about buying your first home? Speak to us - Hugh 0429-010-146, Robert 0411-555-315.