There are various types of home loans in the market and each has its advantages and disadvantages. Even if you are eligible for multiple types of mortgages, you should not blindly accept one. You should think about what would burden you the least. In this context, there is a lot of talk about deciding on the kind of interest rate you would proceed with – a fixed or variable rate.
Difference Between a Fixed Rate and Variable Rate Home Loan
For any first time home purchasers, the first home buyer Sydney services have both options of fixed interest rate and variable interest rate. You should compare various loan options from licensed lenders. Sydney Brokers is one such helping guide for first time home buyers, and they have been working as a mortgage and finance broker in Sydney, Australia for years. They provide you with the most suitable financing solution as per your requirement. You don’t have to search for different lenders separately and compare them.
But, how does a fixed-rate mortgage differ from a variable rate mortgage? The lender predicts the interest rate in fixed-rate loans and the rate remains the same during a fixed term. The repayment does not change due to an increase or decrease in market rates. Generally, lenders offer a range of fixed terms like 1 to 5 years, 10 years, or 15 years. One to five years fixed term is popular with borrowers. You would rarely see a 30-year fixed term. Even Australia does not have a 30-year fixed-rate loan.
For a variable interest rate loan, the rate of interest fluctuates with market ups and downs. The repayment subsequently changes along with it.
Splitting Your Loan
You can split your loan. It means that for some period the interest rate would be fixed, say for 5 years, and the rest of the loan repayment would work with variable interest rates.
Think Before You Opt for A Fixed Rate Loan
Keep these things in mind when want to have a fixed-rate loan –
- Even if the current offer of a fixed rate seems low, it might not be the case in the future. The market might have further lower rates. The ability to accurately predict the market situation in the near future is the job of professionals. You have to rely on such analysis to take a risk.
- If you want to go for refinancing, you might need to pay heavy break fees and a standard discharge fee.
- After completing the fixed term, the loan would not revert to the lowest rate. It would be that particular lender’s average variable rate. It would cost you to change it to a lower variable rate following the market trend and lender’s condition.
Changing Your Mortgage from Variable to Fixed or Vice Versa
It is less complicated to change a variable-rate mortgage to a fixed-rate loan. But it costs more when you try to change the fixed interest rate loan to a variable rate before the term ends. Different lenders have varying break fees and conditions for this change.
In conclusion, you should remember that a fixed rate does not mean that it would be higher than a variable rate. It is subjected to market variation whether you are paying more or not.