Interest rates may drop again, however, one thing for certain is that they will rise again!
Currently, interest rates are historically low and very comptitive. Given this, choosing between fixed and variable loans can be tricky. Let's take a look at the differences between fixed and variable rates.
Fixing your rate gives you confidence in setting a budget allowing you to plan what you can afford. However, you can only fix for a set period of time - three to five year maximum.
If you choose a fixed rate, keep an eye on how interest rates are moving so that you can plan for any changes and don't find yourself in mortgage stress.
Choosing a variable rate can be risky. Whilst interest rates are currently low, variable rate holders enjoy the benefits of interest rate cuts. However, when interest rates rise, their interest rate will increase.
Another option is to take a combination of fixed and variable. There are options to split your home loan for example 70% fixed and 30% variable. This means you benefit from the rate cuts but hedge your bets if they increase and only 30% of your loan will increase. Use the Mortgage Choice Split loan repayments calculator, which helps you work out different options for splitting your home loan.
Questions to consider:
- What do you want to achieve, eg. do you want to pay off a certain amount in a specific period of time?
- Do you want consistency in repayments to help budgeting?
- Would you prefer to take advantage of low interest rates?
You could choose a variable rate in the short term, say for a year or 18 months, and watch the market. When your variable rate expires and if rates are on the move upwards, you can change to a fixed rate to avoid further increases.
If you decide to go with fixed and then want to change to variable, there are usually penalties from lenders. You need to determine if the benefits of changing outweigh the costs.
View our short video on fixed vs variable rates here.
Mortgage Choice Broker Tip
Moving from a variable rate to a fixed rate, and vice versa, doesn't always have to involve refinancing. Your lender may be able to provide this option without the need to switch from one loan to another, and this is an area where your Mortgage Choice broker can offer valuable insights.
At Scott Partridge Mortgage Choice we provide expert mortgage advice to help you with these decisions, provide you with options and guidance allowing you to make an informed decision.
If you would like to learn more about your home loan options, contact us on 0411 505 536, email: firstname.lastname@example.org or click HERE to arrange a meeting.
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