There’s no better time than right now to review your home loan structure and mortgage interest rates. Time to tidy up those external debts, refinance to a better interest rate, or refinance to release equity to fund that new car, boat or investment property. If you’re not sure what repayment structure works best for you, here’s a guide to understanding the different types of loans.
Variable rate loans
This type of loan offers you flexibility in that your mortgage interest rate moves up or down as the market moves. While that means your loan repayments could change from fortnight to fortnight (or month-to-month), if the interest rate drops your repayments drop too which could save you a sizeable amount over the life of your loan.
Additional features like an offset arrangement that links your loan account to your savings account are usually also available with this type of loan. What that means is that any funds in your savings account are offset against your mortgage and you only pay interest on the difference between the two amounts.
Some variable rate loans also allow you to make additional payments and pay your loan back faster, offering you even more flexibility so you can be debt-free sooner.
Fixed rate loans
Fixing your rate for a limited period offers you some security in the form of regular repayments each fortnight or month. This makes it easier for you to budget and could suit first home buyers who need to stick to a fixed budget each month.
The most popular fixed rate loans are for three and five years although there are options ranging from one to ten years. If an interest rate rise is anticipated in the near future, this type of loan structure means you lock in a rate for a set time and even if interest rates increase, your rate doesn’t change for that fixed period.
Unfortunately, if interests rate drop, you could end up paying a higher interest rate until your loan term ends. You may be able to break your fixed rate term in this case, but your lender may charge additional fees. Similarly, if you want to make additional payments over and above your fortnightly or monthly repayment, your lender may charge a fee so this type of loan can be restrictive if you’re in a hurry to repay your mortgage.
Split rate loans
Splitting your loan into both a fixed rate and a variable rate means you cover yourself on both options. You have the flexibility and advantage of interest rate movement with a variable loan for part of your mortgage, combined with the security of locking in an interest rate and knowing how much you have to repay with the fixed portion of your home loan.
What’s right for you?
Here’s where you’ll find that getting advice from your Mortgage Express broker will benefit you most. Our team of brokers are experienced at helping our clients decide on the best split of variable and fixed interest rates dependent on their unique situation.
If you’d like advice about restructuring your home loan and securing a better interest rate, simply complete this online form and one of our team in your area will be in touch to discuss how we can help you.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.
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