There’s a thing or two to think about when locking in a home loan. One of the first should be whether you go for a fixed, floating or variable interest rate.
These terms refer to three different types of interest on your mortgage, each of which will affect your monthly repayments in varying ways. It may not have you on the edge of your seat, but it’s information that you absolutely need to know prior to buying.
Lock a low rate in
A fixed interest rate does what it says on the box – it stays the same for a certain period, usually one, three or five years. If market interest rates are currently very low, this may be a brilliant option, as you’ll be able to lock them for a fixed term and you won’t be affected by rate rises.
You’ll also know the exact amount that you have to pay each month, making planning and budgeting easier. On the other hand, you may be charged if you’d like to make extra repayments, or pay your loan off early. You’ll also be frustrated if market rates drop, as you’ll be locked into paying your current rate.
Trust the market
A variable rate is the exact opposite of a fixed rate – it changes with the market. If you expect market rates to drop in the near future this might be your best option.
A variable interest rate usually offers more flexible repayment terms as well. If you want to make extra repayments or settle your loan early, you may not be charged to do so.
Hedge your bets
Your third and final option when it comes to picking your interest-type is a split-loan or a partially fixed rate. This is essentially a way to hedge your bets and minimise the effects of a market change on your home loan and repayments.
With a split-loan, part of your home loan will be fixed interest and the rest will be variable. That way, if interest rates drop, you’ll enjoy some rate decreases, but if they increase the damage will be minimised.
If you’re struggling to get your head around your home loan, or you just want to make sure you get everything right, get in touch with us. We’ll make sure your interest rates and your entire home loan are as suitable and stress free as possible.