Fixed or Variable Home Loans: A Choice That Could Cost or Save You Thousands!
Choosing a home loan itself is a courageous decision, and everything should be done to ensure it delivers value. That’s why it’s important to understand the difference between a fixed-rate and a variable-rate home loan. Choosing wisely can save you thousands and give you confidence in your repayments!
Fixed-Rate Home Loans: Predictability and Peace of Mind
A fixed-rate home loan locks in your interest rate for a set term, usually between 1 to 5 years. This means your monthly repayments stay the same, no matter what happens with the market or the official interest rate.
Why people love fixed rates:
- Easier budgeting: Your monthly repayments are predictable.
- Peace of mind: No surprises from rising interest rates.
- Financial clarity: Plan your expenses confidently while enjoying your new home.
Important things to know:
- Extra repayments may be limited, and exceeding the cap can result in break costs.
- When the fixed term ends, you can either refix at a new rate or switch to a variable rate.
- A fixed loan is ideal if stability and certainty are your top priorities.
Variable-Rate Home Loans: Flexibility and Control
A variable-rate home loan moves up or down with market changes, such as adjustments to the RBA’s cash rate. While your minimum repayment can change, variable loans come with features designed to help you pay off your home faster.
Key features of variable loans:
- Offset Accounts: Reduce the principal on which interest is calculated. For example, a $350,000 loan with $25,000 in an offset account means you only pay interest on $325,000.
- Redraw Facility: Access extra repayments you’ve already made.
- Unlimited extra repayments: Pay off your debt faster without penalty.
Why choose a variable rate?
- Perfect for buyers who want flexibility
- Ideal if you plan to make extra repayments frequently
- Easier to switch to a fixed rate later, usually without break costs
- Can be combined with a split loan for a balance of stability and flexibility
These are mentioned to give you an overall idea before borrowing a home loan, but once you’re ready to choose, it’s better to work with a mortgage broker. They analyse your savings, assess your eligibility, and find the best lender for you, rather than offering the common solutions you often get at banks. Lionskey Finance is an expert in this industry, with a panel of specialists handling home loans for over 30 years.