What is a fixed rate home loan?
Getting a fixed rate loan means the interest you are charged on your mortgage is locked in for a set period of your loan.
The Reserve Bank will change the official interest rate from time to time, which increases lenders’ operating costs and as a result would usually cause your own interest rate to go up. However if you have a fixed rate, you will be protected from these fluctuations and the amount of interest you pay will stay the same.
How long does the fixed rate term last?
While a home loan typically lasts for 25 to 30 years, the term that you set your fixed rate for is usually between one and five years. When this period ends, you can choose to continue with another fixed rate term, or switch to a variable home loan which will change with the market rates.
If you decide to get a new fixed rate, it won’t necessarily be the same as your previous fixed rate, as the market may have changed in the meantime.
What are the benefits of a fixed rate loan?
A fixed rate home loan can be useful if you need to budget for expenses like renovations or new furniture. You will be able to count on a predictable repayment amount, and not have to worry about any surprises.
What are the drawbacks?
Fixed rate loans can be a good safe option, but they’re not for everyone.
Firstly, if you come across extra money and want to make early repayments, a fixed loan will only let you pay a limited amount. This varies lender to lender, but is usually a set dollar figure over the minimum repayment per annum.
Secondly, if the official interest rate falls, you won’t get to enjoy the benefits of a lower rate on your loan.
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We specialise in creating the right solution for different circumstances. We understand everyone’s situation is unique, so we’ll help you work out which loan option suits you best. Call us on 1300 555 888.
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