Online Calculator | A Guide To Fixed Rate Home Loans

A Guide To Fixed Rate Home Loans

The interest rate attached to your home loan or mortgage determines what your home loan costs you each month. Fluctuations in interest rates, even minor ones, can affect what you repay over the lifetime of a loan. It’s no wonder then that so much news is dedicated to interest rate updates, predictions and analysis. It’s the single largest investment most average Australian’s will ever make.

But how can we avoid the ups and downs of interest rates and smooth out the mortgage ride for ourselves? A fixed rate home loan may assist, especially in the early days when a mortgage is established.

What exactly is a fixed rate home loan?

Many financial institutions offer a fixed rate home loan. This loan usually allows you to lock in an interest rate between 1 and 5 years. The rate you lock in is based on various economic factors and each bank or lending institution has its own way of determining the fixed rate they offer. As a result, fixed interest rates will differ from bank to bank.

Advantages to fixing a rate

There are two major advantages to agreeing to a fixed rate home loan:

  • It can protect you against future interest rate rises
  • You know exactly how much money you owe at each repayment

Gill McLean from moneyQuest said, “Fixed interest rates are really best suited to people who live on very tight budgets. Some first home buyers are also suited to this kind of home loan solution as they are often at the start of their savings career and have low cash reserves.”

However, there are some disadvantages to fixing your interest rate, McLean warns.

Disadvantages to fixing a rate

  • If the interest rates fall, you will not benefit from any savings
  • There could be limits to any additional repayments thereby making it difficult to pay off your loan sooner than you had hoped
  • Expensive early exit fees and penalties can make it cost prohibitive to switch to a home loan solution with a lower interest rate
  • Deferred establishment fees that make the loan more expensive than you initially thought can be in the hidden in the fine print

It can be difficult to decide which home loan solution is best suited to you as there are so many choices these days. You can estimate the effects of different loan types by using special online home loan calculators.

Where to turn for home loan selection and help

The right mortgage structure can save you thousands of dollars so it’s worth understanding what to look for. Simply comparing interest rates is not enough. Take time to understand the product features, fees and charges along with the interest rate information. As with any major financial commitment, it’s best to consider your individual situation and seek professional advice.

Help is only a phone call away. A bank manager or mortgage broker can support you with your home loan search. New products surface all the time in the fast-paced mortgage industry. Even the most experienced mortgage experts must spend time understanding your individual situation and then consider all the different finance products available before making a recommendation to you.

For more information about home loans, to make an appointment with a mortgage broker or to compare up to date home loan rates and offers please visit the ratesonline.com.au web site.

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