23 Oct Fixed rate or variable
The 4 major banks have just announced Interest rate raise but what is the future?
Whether you’re buying a first home or adding another investment property to your portfolio, deciding whether to go fixed or variable is a decision that can cost, or save, tens of thousands of dollars from your mortgage over the life of your loan.
To choose the rate that’s best for you, it’s important to understand the difference.
Fixed Rate Mortgage
By choosing a fixed rate for your mortgage repayments, you can manage your budget easily – with repayments that remain the same throughout the term of your fixed rate loan period.
Most lenders offer period of between 12 months to five years – depending on your financial circumstances and the loan products available to you – allowing you to lock in your current interest rate for a set period of time.
Variable Interest Rates
Variable is just that – affected by the fluctuations of the market.
It’s a gamble, basically – you may win when interest rates fall below the current rate but if they suddenly spike, your repayments go up with it, something that can wreak potential havoc on your cash flow and may outweigh the benefits of savings.
There is no definite ‘best choice’, with each option coming with its own unique advantages and potential pitfalls – dependent on your own financial situation and the current climate of the home loan market.
Your Loan – Your Choice
Remember – every home loan is different and every borrower is different too. Part of the choice may be driven by your personality and your willingness to expose yourself to risk.
If you work best with firm plans that don’t change to help you achieve your savings and repayment goals, choose fixed. If you are less troubled by ups and downs and have the cash flow on hand to cover you, variable interest rates may give you more benefit.
It’s important to note that, with a fixed rate loan in place, extra loan repayments are often not allowed, without attracting a penalty fee.
One added advantage of variable rate repayments is that you can make extra repayments at no cost – reducing your overall loan amount faster – and reducing your interest repayments.
To make an educated decision about whether fixed rate interest rates or variable interest rates are best for you, be honest about your circumstances and financial position and talk to us at Aspirus Financial Services to understand all the implications of your choice.