There isn’t a simple answer because both mortgages have their pros and limitations. Like your wife suggested, if you're looking to follow a budget plan, fixed-rate loans can be a good option. However, if there’s a possibility of an increase in your revenue, extra repayments (which is available in variable rate mortgage) can help reduce your mortgage term. The shortened home loan term would eventually help you save interest amount of the deduced period.
Making repayments through fixed interest rates means you know the exact amount of money you would need for each mortgage repayment. Fixed interest rates provide certainty and a sense of security. Furthermore, fixed rates are suitable if you have a keen sense of market trends and have predicted higher future interest rates. Nonetheless, the fact is, no one knows when rates will rise or fall so it's difficult to say when it's the right time to fix and for how long. This is one of the drawbacks of a fixed rate mortgage.
With a standard variable interest loan, most lenders offer features which can help you pay off your loan faster and reduce your overall interest costs like:
- You can make unlimited extra repayments on your minimum monthly repayments. For example, if you’re earning more than what you’ve been anticipating, you can make additional repayments every month.
- You may withdraw from the additional repayments that you’ve made on the loan if required. Some banks allow you to withdraw any amount of the additional repayment, while some set a fixed withdrawal amount.
There is a third solution where you can get the benefits of both loans.
Try splitting the home loan into both fixed and variable rate components.
We have brokers who are experts at assessing your situation. Call us on 1300 889 743 to speak with one of our brokers.
Cheers,