Fixed rate home loans appeal to many homebuyers for a variety of reasons.
What exactly are fixed rate home loans?
Quite simply it’s an interest rate set for an agreed term.
Locking in a fixed rate home loan locks in your monthly re-payments. Your interest rate will not change during that period the fixed rate period.
It is not uncommon to fix home loans from 1 to 5 years and some banks allow longer terms 7 or 10 years.
Why do so many people prefer this option and what are the advantages of a fixed-rate home loan?
The advantage of fixing your home loan is certainty and peace of mind. You know in advance that your rate and payment will be for the term of the fixed period and the comfort of knowing it will not change which really helps with budgeting.
Ideal if you need predictability and prefer the security of guarding against interest rate rises.
It makes budgeting so much easier knowing what your repayments will be whereas a variable rate home loan means your repayments can vary as the rates change.
If interest rates go up it won’t affect your repayments for the term that you have chosen to fix your home loan at and you’ll be happy knowing you’re paying less than the variable rate.
What are the drawbacks?
The downside of a fixed-rate mortgage is that if you fix a home loan for a long period of time and the interest rates go down you will be locked in at the interest rate that you chose at the time of fixing and there can be penalties for breaking out of the contract early.
If variable rates go down below your fixed-rate then you will be paying more and you won’t receive a benefit from the rate drop.
Sometimes making extra payments may not be allowed or limited on a fixed-rate loan where as variable rate loans usually allow you to make extra payments if you choose to do so.
Breakout fees can sometimes be applicable if you pay off your loan within a set period. Typical example may be if you sell your home within that fixed-rate period.
And all comes down choice
If unsure of what type of loan apply for, call us on 0412 179 306 and we will help guide you through your home loan options and together help determine whether a variable rate or fixed rate home loan matches your unique needs.
