Opinion

Fixed or variable home loan rates? What would you choose?

With brokers reporting an increase of an incredible 150 percent on home loan lending over the last three years in Australia, one thing is sure: the time to buy a property in Australia is now.

In the middle of a boom, Australia’s real estate market ranges from the smooth penthouses in Sydney, to the beachfront apartments in Melbourne, to just about everything else in-between.

If you have decided that the time for you to buy a home is now, you will most certainly be faced with the dilemma: fixed rate or variable rate? Here we give you some advice as to which rate would be better for you.

 

Why choose a fixed home loan?

Fixed rate home loans are usually set for a period of between one to five years, and gives a few advantages to buyers looking to avoid some uncertainty of variable homes.

A fixed loan could make budgeting for a buyer easier, which could be better if you are a first time buyer – you will know exactly what you are repaying and can ensure you have the access to that cash each month.

Another advantage perhaps of having a fixed loan is that changes in rates simply don’t matter to you. If interest rates rise above your fixed rate, you can relax at home knowing that you will be paying less than the variable rate and won’t have to budget for more or less than what you would have before.

 

Why choose a premium variable loan?

With a premium variable loan you are taking the risk of your rate depending on what is the rate at that time. Whether the rate goes up or down, you will have to pay according to that rate. This is great if rates go down below the fixed rate, as you will end repaying less than those who choose a fixed rate, this is perhaps better for those second home buyers or those who can afford to take the risk or rate rises or rate decreases.

You can often make extra repayments with a variable loan at no cost – so if you are looking to pay off a large chunk of your mortgage at a given time, a variable rate would be a better option for you, as fixed rate loans sometimes don’t allow extra repayment, or only at an extra cost.

If you have a fixed rate loan, there will usually be a break fee if you change or want to pay off your loan within the set period. So if you choose to sell your home and you are using a fixed rate, you may have a fee to pay for breaking that loan before the set period. With variable loans this would not be the case.

You can pick up premium variable rate home loans from Newcastle Permanent, one of the leading lenders in Australia offering some of the most competitive rates with no establishment fees or ongoing fees.

 

What loan did you choose?

Have you purchased a home in recent times? We would love to know which loan type you chose and your reasons for choosing such a loan – please let us know in the comment section below.

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