Fixed or variable interest loan

Any general questions you might have in regards to loans and finance.
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Otto Dargan
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Re: Fixed or variable interest loan

Post by Otto Dargan »

Hi and welcome to the forums stout poppy.

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.
The obvious downside with a variable rate loan is that you're taking the risk if rates rise.

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,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Fixed or variable interest loan

Post by Otto Dargan »

Hi stout poppy,

Let’s assume the interest rate doesn’t rise and you use the split mortgage effectively: then you may be able to pay off your mortgage early. Also, should an increase occur, the locked rates on the fixed rate portion causes its interest to stay unchanged.

Also, you get a competitive interest rate which can be secured with the fixed rate, while retaining the flexibility on the variable side.

If you would like to find out more about splitting mortgages, then you can check out our website. We can also be reached on 1300 889 743 or you can fill in our free assessment form to see if you qualify for a loan or not.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

User avatar
Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Fixed or variable interest loan

Post by Otto Dargan »

Hi piledriver.

Capped rate home loans are similar to a variable rate that fluctuates depending on the existing rates. However, if you cap your rates, any rise beyond the agreed rate cap wouldn't apply. The following could also be the reason why your dad suggested the capped rate home loan:
  • Capped rate home loans are usually cheaper than fixed rates.
  • They are more flexible and similar to variable rates where you can make extra repayments of a maximum of 50% of the loan amount without suffering from any penalties, within the capped term.

Our brokers are experts in capped rate home loan. We can be reached on 1300 889 743.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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