Fixed Home Loan vs. Variable Home Loan: Which is the Better Option? When in the process of taking out a loan, homebuyers can choose to apply for a fixed or variable interest rate home loan. These loans offer many advantages, based on different factors such as the buyer’s current financial situation and comfort level with the changing interest rates. Here is a quick discussion on the two home loan options:
Fixed Rate Loan A fixed rate loan features a set interest rate, which remains constant and unchanged during the fixed period. This type of loan is most beneficial when interest rates rise. Homebuyers with a fixed interest home loan won’t need to worry about saving more money to keep up with increasing repayments. Homeowners who prefer a consistent monthly payment can choose to apply for a fixed rate loan. This option is ideal for those who need a longer repayment period and for those who want to lock in a lower interest rate. While this type of loan assures a predictable repayment amount, breaking the loan can cost thousands. Extra loan repayments are not allowed or are only be permitted with an extra fee.
Variable Home Loan With this type of loan, the rates and repayments can change at any time. Fluctuations in the interest rate depend on current market conditions. Homeowners can choose to make unlimited repayments to pay off the loan faster and to be in a good position in case interest rates increase. A variable home loan will give borrowers the flexibility of making repayments depending on the market conditions. This type of home loan is perfect for those who do not need much time to repay the loan amount. This is also ideal for borrowers who are confident that lower interest rates will prevail during the time of repayment. As no one can predict how the rates will move, there is no guarantee that homebuyers can save more with a certain loan. A fixed rate home loan is a reasonable option if homebuyers are happy with the amount on a fixed rate loan. A variable rate home loan, however, is best if homebuyers want the flexibility of making extra repayments in shorter terms.
Resources: http://www.huntclub.com.au/cranbourne http://www.yourmortgage.com.au/calculators/fixed_variable/ https://www.moneysmart.gov.au/borrowing-and-credit/home-loans/fixed-vs-variable-home-loans#gain