Fixed vs Variable Rate Home Loans: Which one is Best?


Fixed vs Variable Rate Home Loans: Which one is Best?

The most common dilemma or uncertainty for many people, be they first-time home buyers or an experienced set of investors, is which kind of home loan interest rate should be availed. You need to make a wise choice between a fixed-rate home loan and a variable-rate home loan.

The choice of a perfect option can cause anxiety and confusion because there is no universal answer, it depends on one’s unique financial goals and circumstances.

This uncertainty is one of the reasons why many turn to mortgage brokers for guidance related to it. These are the professionals who use tried & tested methods to help you understand different kinds of home loans and the associated rates of interest which can impact your priorities and plans.

A mortgage broker helps you identify perfect home loan requirements keeping in mind the objectives which are crucial for making the right decision. The broker will help you understand your priorities such as understanding what is important for you – the stability of the repayments or flexibility to make unlimited repayments without penalty.

Let us dive deep and understand what fixed and variable-rate home loans are.

Fixed Rate Home Loan

A fixed-rate home loan is a type of home loan where the rate of interest is fixed throughout the life of the loan. It offers the security of fixed repayments. This can be ideal if you have a strict budget and need certainty in your financial planning. Here you will be paying fixed monthly instalments till the loan is repaid fully. But, there is a limit on the number of extra repayments that can be made.

Variable Rate Home Loan

On the contrary, a variable rate home loan provides more degree of flexibility and allows unlimited extra repayments, thus, helping you pay off your home loan faster. Apart from that, they also typically offer features like redraw facilities and offset accounts. They are also generally easier to exit if you’re considering selling your home or switching loans, as fixed-rate loans often have penalty fees for early exit.

So, understanding what type of home loan is ideal for you depends upon your goals and needs in this context.

Best of Both Worlds for Home Loan?

Is there any other option? Is splitting the home loan possible?

Indeed, an option for splitting your home loan between fixed and variable rates is another attractive option that offers the best of both kinds of loans. While you can benefit from the stability of a fixed rate for part of your home loan, on the other hand, you can enjoy the flexibility of a variable rate for the remaining part. There is usually no limit on how you split your loan, provided the option of the same is offered by your lender.

One of the main reasons for splitting your home loan interest rate helps you give peace of mind that a certain portion of your loan won’t vary, while the variable component allows for unlimited extra repayments.

So, there are many factors which are to be considered when choosing between fixed and variable-rate home loans. Always read the fine print of any loan product carefully, or better yet, consult with a reputable, accredited, and trustworthy mortgage broker to help you navigate your various home loan options and make the best decision depending upon your financial circumstances.Contact Loan Junction today for the best home loan solutions in Australia.