For someone who’s going to buy a property for the first time, knowing the process and trying to learn about the dos and don’ts can be overwhelming. So it is recommended to familiarize yourself with the different home loan options before making a purchase because choosing between best fixed rate home loan versus a variable home loan may depend entirely on your own preference s; which is why we are exploring some of the differences between the two types of home loan to help you determine which one is the right one for you.
Fixed Rate Home Loans
The fixed rate, as the name suggests, lets you lock in your interest rate for a certain period of time which is useful when you are sticking to a budget. This gives you assurance on your repayments and protects you from potential changes in rates. The interest rate charged on your home loan will remain fixed during the whole duration of the term even when the market interest rates are changing and fluctuating. This can also mean that you will retain the same rate even if the interest rates have decreased over the course of your fixed term. While opting for a fixed rate may prove to be beneficial for maintaining your budget and set your financial goals, this also gives you lesser features in comparison to choosing a variable rate home loan because you will not be allowed to redraw from a fixed rate loan. In addition, fixed rate loans generally have a break fee if you decide to change and pay off your loan.
It is advisable to lock in your loan at a fixed rate if interest rates are moderately low but is about to increase so that even if the interest rates surges higher, your loan retains its fixed rate depending on the terms of your agreement with the lender. However, should there be a decline in interest rates some will recommend that a good option to go for would be to have a variable rate home loan.
Variable Rate Home Loans
As mentioned above, variable rate home loans offers more features than the former option. This type of home loan gives you with more flexibility than the fixed rate option since it comes with some features that will allow you to make additional repayments in certain financial situations, let you redraw some supplementary funding should you need it, make it easier for you to switch to a different loan if you happen to find a better deal as well as the choice to save on interest through the creation of an offset account. It just so happens that its disadvantages are related to budgeting and mortgage payments because it will be significantly harder to track the rates because rates may increase drastically at any given time. This option is more suited for those who can adapt to the unpredictable change of rates and afford higher repayments.
Choosing the best option for you will depend entirely on your financial preferences, so it’s best to set a final budget before any purchases are to be made.
