Home Loan Rate

A Fixed Or Variable Rate

The toughest of home loan rate decision of all is whether to lock in an interest rate or go for a variable rate. A fixed rate gives you security, but a variable rate can add to your flexibility and cut your costs.

As you begin looking for a home loan, you'll come across two main types of loans: fixed and variable. Which one you choose depends on your finances circumstances, the features you need in a loan, how long you plan to own the property and whether you believe interest rates will rise or fall. The good news is that as competition has intensified, the gap between fixed and variable rates has all but disappeared.

Fixed Rate

With fixed interest loans, the rate is set for a specific period - usually 1 to 5 years. At the end of that time, the loan reverts to a variable rate or you can renegotiate a further fixed term. By locking in your home loan, you are protected against rising interest rates. And your monthly repayments remain the same throughout the fixed-interest period.

On the down side, fixed loans rate have fewer features than variable loans rate, are expensive to break and can attract a slightly higher interest rate.

Variable Rate (has two types)

Basic Variable

The big attraction is the low rate - up to two per cent less than standard variable or fixed rates. For that you get a no-frills loan, with fewer features than a "standard" loan.

But basic loans have changed in the past few years. Most lenders now allow early repayment and fortnightly payments on some of their "basic" loans - so check the fine print carefully.

Standard Variable

Most standard variable loans feature accelerated repayment options, offset, redraw, split loan capacity, variable repayment schedules and portability. If you don't plan to use most of these features, you are paying for window dressing and may be better off with a basic or fixed loan.

Now you know about home loan rate and the different between fixed rate and variable rate. The final decision is up to you to pick which one is suitable for your situation.