Choosing the right type of home loan can be one of the most significant decisions you’ll make when purchasing a property, the two primary options are fixed and variable home loans, each with its own advantages and considerations. But how do you know which one suits your financial goals? Let’s break it down.
What is a Fixed Home Loan?
A fixed home loan locks in your interest rate for a set period, typically 1 to 5 years. This means your repayments remain the same regardless of market fluctuations during the fixed term.
Advantages:
- Stability: You’ll have predictable repayments, making budgeting easier.
- Protection from rate rises: If interest rates increase, your rate remains unaffected.
Considerations:
- Limited flexibility: Most fixed loans have restrictions on extra repayments and redraw facilities.
- Break costs: Exiting a fixed loan early can incur significant fees.
What is a Variable Home Loan?
A variable home loan, on the other hand, fluctuates with the market interest rate, meaning your repayments may increase or decrease over time.
Advantages:
- Flexibility: Many variable loans allow extra repayments, which can help you pay off your loan faster.
- Access to features: Options like offset accounts and redraw facilities are commonly available.
Considerations:
- Unpredictability: Your repayments could increase if interest rates rise.
- Budgeting challenges: Fluctuating repayments might make long-term planning more difficult.
Factors to consider when choosing
- Your financial goals: Are you focused on stability or flexibility?
- Market conditions: Do you expect interest rates to rise or fall in the near future?
- Your budget: Can you handle potential increases in repayments?
- Loan features: Do you need features like offset accounts or extra repayment options?
The best of both worlds: Split loans
If you can’t decide between fixed and variable, a split loan might be the perfect solution. This allows you to fix a portion of your loan while keeping the rest variable, providing a balance of stability and flexibility.
Navigating the complexities of home loans can be overwhelming, but you don’t have to do it alone. At UFinancial, our team of expert brokers can help you assess your financial situation and find the loan option that’s right for you. Get in touch today!
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced, or republished without prior written consent. Content developed in partnership with IFPA.
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