There is a lot to think about when finding a right home loan for yourself. One of them is fixed rate loan or a variable rate loan?
In a fixed rate loan, the interest rate on your home loan remains fixed for a specified period. Typically, a bank would offer a fixed rate for a period between 1 to 5 years. Once the fixed rate term is up, your loan then reverts to the variable rate. Fixed rate offers the borrowers certainty of repayments for the fixed term. It prevents the borrowers from any increase in the interest rates and such loan comes with less flexibilities.
In a variable rate loan, your interest rate could change due to a number of factors one of which is the official cash rate set by RBA. Variable rate loans are not as steady as fixed rate loans and hence when a bank increases their interest rates, your repayments can also go up. But they do come with greater flexibilities like you could make extra repayments, link an offset account or redraw excess funds. If interest rates go down, your repayments can go down as well.
Which is the right one for you depends on your goals and personal circumstances. If you want certainty in repayments, fixed rate can provide you that. If you want extra features, variable rate loan could be suitable. You can also decide to may be split your home loan to get the best of both types.
If you are looking for a suitable home loan and unable to decide, click here to get in touch with us and we can assist you by going through your personal finances and understanding your credit requirement.