Choosing the kind of interest rate you use isn't exactly edge of your seat stuff. However, the fact is, it could save you tens of thousands if you choose right, and cost you even more if you choose wrong.
If the prospect of saving or losing a large sum of money doesn't pique your interest, nothing will. In this article, we take a look at the basics of choosing whether to go with a fixed, variable or hybrid home loan.
Fixed: Lock it in
Since early in the year, the cash rate has been at a record low. As a result, banks are now offering consumers excellent home loan interest rates, passing on the savings to mortgage holders and home buyers nationwide.
However, this won't last forever, and industry commentators have forecasted that rates could start to rise as early as next year. This is an excellent example of when a fixed rate loan might be ideal. With such a loan, you'll lock in the current low interest rate for a set period which is usually one, three or five years.
Keep in mind though, that with a fixed rate you may be charged more when making extra repayments and the conditions of your home loan may be less flexible.
Floating: Go with the market rates
Since early in the year the cash rate has been at a record low.
With a floating interest rate, the amount you pay changes with market conditions and the cash rate. This is a great option if you're of the opinion that market interest rates will drop in the near future, as yours will drop with them, saving you money.
It's also brilliant for those who want maximum flexibility with their home loan and repayments. Generally, you wont be charged fees for making extra repayments, or paying your mortgage off early with a floating interest rate loan.
Split: The safe option
If you're unsure whether market interest rates will go up or down, and you want flexibility of repayments, a split rate home loan might be for you. With this type of arrangement, you'll fix the interest rates on a portion of your home loan and leave them floating (variable) with the rest.
You'll be able to make repayments on the variable rate portion without extra fees, but your repayments wont be fully at the mercy of market changes thanks to the fixed portion
If you're keen on finding the most suitable home loan for your situation, get in touch with Advantage Finance today. We've been helping Australians navigate mortgage technicalities for over a decade now, and we know our way around an interest rate!