Loan Repayment OptionsRead About the Advantages of Fixed, Variable & Combination Loans
Variable Rates Loans
A variable rate is a rate that fluctuates with market cycles over time which gives you the advantage of your interest rate decreasing if the lender passes on any rate reduction, and visa-versa, if interest rates increases the lender has the option to increase the variable rate too.
Advantages of Variable Rate Loans
- Flexibility: You can make additional repayments, low introductory rates, possibly of higher discounts or a redraw facility
- Features: The option of adding a 100% Offset Account to your variable rate split, which in the long run can help you pay off your home loan sooner.
- Repayment Options: More repayment options to suit your lifestyle, make weekly, fortnightly or monthly repayments.
Disadvantages of Variable Rate Loans
- Your interest rate can go up, therefore so will your home loan repayments and possibly more than the amount you can afford
- Not having the security of known exactly what your monthly repayment will be for the duration of the loan. If you prefer knowing where you stand, think about a fixed rate loan.
Advantages of Fixed Rate Loans
- Security: The fixed rate period is normally set from 1-5 years; this can offer you assurance of your set-periodical repayments not changing. Therefore, your home loan repayments will remain the same during the fixed rate period.
- Makes budgeting easier. You know exactly what you’re paying!
- Rate rises wont effect your repayments or interest rate during the fixed rate period.
Disadvantages of Fixed Rate Loans
- You may have few loan repayment options, such as only paying monthly.
- You may be disadvantages if the standard variable interest rate falls below your fixed rate. This may annoy you, but it is important to remember what goes up must come down and this is the same for the home loan interest rates.
- If you choose to leave your lender, payout the loan or choose to refinance to another product Fixed rate break costs may be payable. The fee could be quite substantial so careful consideration is needed to make sure that a fixed rate is suitable for your future needs and objectives. For example, if you wish to sell your home in a year or two it wouldn’t make sense to fix it for a period of 2 or more years.
- These types of loans are only offered by some lenders, the lender will generally offer you a higher discount for taking both products, therefore 50% of your loan fixed and 50% variable. The advantages and disadvantages remain the same as the same rules apply as above.