Variable rate loans
With a variable rate loan, your repayments vary depending on interest rate rises and falls. If rates go up, so do your repayments. If rates go down, your repayments fall too. These can be a good option in a lower interest climate such as Australia has experienced since 2009.
An important feature of variable rate loans is that you're able to make extra repayments—without cost—to pay off your loan sooner. You also have the option of 100% offset which you don’t get with a fixed rate loan.
Fixed rate loans
The interest rate on this loan is fixed for a certain period—usually one to five years (or up to 10 years for investment properties). When that period's up, you may opt for another fixed rate period, or else move to a variable rate.
The big advantage of fixed rate loans is that they offer certainty—you know exactly how much your repayments will be. Effectively, you're opting for security (and certainty) over flexibility. This obviously helps with budgeting. But the chief downside is that you won’t get the benefit of lower repayments if interest rates fall. Also if you break your loan before the fixed term expires, you could incur economic costs.
If you like the the certainty of fixed repayments, but also want features like 100% offset, then this loan’s for you. Part fixed, part variable.
How does it work? You have two smaller loans equalling your total loan amount. You might borrow $300,000 in total, but fix $200,000 and keep $100,000 as variable. Think of this as a hedge—if interest rates rise, you'll be better off than if you'd taken out a variable rate loan only. Conversely, if they were to fall, you're better off than if you'd gone just with a fixed rate.
We know that the home loan process can be daunting. When the time comes, don’t feel like you have to do it on your own. Call us on 13 78 79, visit your local branch, make an appointment with a mobile banker or, if you’re ready, feel free to apply online.