Fixed vs variable rates
At present there are variable home loans with interest rates from as low as 3.69% (comparison rate 3.83%*). To obtain this sort of rate you will only be able to borrow 80% of the purchase price on the value of the property. There are some instances where this low rate can be obtained regardless of the loan to valuation ratio so talk to a Multi-Choice Broker.
Fixed rates are generally about 3.69% (comparison rate 4.92%*) to 3.89% (comparison rate 4.19%*). Investment home loan rates are generally a little higher than Owner Occupied loans.
If you are nervous about fixing, you can fix part of your loan so that you will have certainty of rate for some of your loan and flexibility with the variable part of your loan. This means every cut or rise in interest rates would hit you by only half the impact. It also gives you the flexibility to pay off the variable portion if you wanted to.
Advantages of Fixing a Loan
- Interest rate certainty for a specific period of time
- Repayment certainty which will assist you with peace of mind cash flow budgeting.
Disadvantages of Fixing a Loan
- The interest rate remains fixed for a specific period, regardless of any downward movement in variable rates
- You may incur break costs if you break out of your fixed rate early, either through switching or discharging.
- You are limited to making additional payments on the loan during the fixed period. Lenders additional payments may be capped at $5,000 or $10,000, or as advised by the particular lender. Also keep in mind that redraw is generally not available during the fixed term. A few lenders do allow such features without penalty so if this is of interest to you please mention it to your broker.
*Comparison rate is calculated based on a loan amount of $150,000 over 25 years with monthly repayments. WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate
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