If you are about to embark upon the daunting home buying process, then you must be dawdling between two choices —should I get my home loan fixed or is variable loan a better option? Well, there are certain factors including your current financial situation that must be considered before you choose a home loan with the two different interest rate plans. There are distinctive pros and cons associated with both fixed and variable home loans. Read on to know the perks of both and the considerations that you must look into before finalizing.
Fixed Home Loan
Just as the name suggests, the fixed home loan is predetermined for a period of time, which is mostly from one till five years. One of the downsides of fixed home loans is that you cannot make extra payments even if you can afford in most circumstances. If you do get the permission to pay additional repayments, it is often associated with additional fees, which isn’t the case with variable home loans. Also, you do not get the option of redrawing the loan repayments. So, what is the benefit of a fixed home loan? Well, it is the certainty that within a certain time frame, you will be able to repay your debts. You can make a budget easily as the payments are fixed and make a plan for the future in an organized manner, as the repayments are not going to change. You can protect the loan repayments from being affected by the rise in the interest rates (but as a consequence, you will not be able to take advantage of the falling interest rates). Another thing to consider is that if you want to break away from the fixed loan term, you will have to pay an additional “break fees”.
Variable Home Loan
These loans are commonly offered by lenders and banks. Variable home loans are popular amongst the first time home buyers. The interest rate is low initially but after a fixed time period elapses, the variations in the Australian Reserve Bank’s cash rate begin to affect the interest rates either in an uptrend or downtrend. Typically, the loan repayment term spans over thirty years.
People who are looking for flexibility and a variety of additional features should go for standard variable home loans. This means that you can make additional repayments and can pay the loan faster than you expected. Additionally, if the market index rate declines, you will get the benefit of lower interest rates and the repayment amount will also become low. However, if the opposite happens, then you might have to pay amounts higher than you can afford. With a variable home loan, you have the option of redrawing the additional loan payments more than the minimum required amount.
If you are planning to invest in a property in Adelaide, then you may seek the advice of professional specialists at My Property House. We will guide you about the potential of your investment by helping you locate and identify the right property.
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