Should you get a variable or fixed rate home loan?

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When you take out a home loan, you normally choose between a fixed interest rate or variable interest rate.

With a fixed interest rate home loan your interest rate is locked in for a certain period. For example it could be over 5 years. This means that your loan repayments will remain the same over the 5 year term.

So fixing your home loan does make budgeting easier because you know exactly what you’re repayments are going to be. This helps you to plan and set financial goals.

Any increases in interest rates will not affect you. However, any interest rate decreases will not apply to you. You won’t benefit from a drop in interest rates if you are on a fixed rate.

Other considerations include that fact that additional loan repayments are often not allowed with fixed rate loans. A redraw facility may not be offered on a fixed rate loan.

A fixed rate may not be the best option if you are thinking about selling your home or want the freedom to switch home loans if you find a better deal from another lending provider.

With a variable rate home loan your interest rate will move with changes to market interest rates so the interest rate will likely rise or fall over the term of your loan.

This means that your repayments will vary as the rate changes.

Some of the considerations with a variable rate home loan include that fact that you can make extra repayments, often at no extra cost, which saves you interest and helps you to pay off your loan sooner.

A variable rate home loan may have features which suit you such as unlimited redraws on any additional repayments or the ability to save on interest by setting up an offset account.

Variable rate loans are usually easier and cheaper to switch loans to another lending provider if you find a better deal.

Budgeting is harder with a variable rate because loan repayments will increase if there is a rise in interest rates. So if you aren’t prepared for a rate rise you may have trouble keeping up with repayments.

In order to get the best information for your circumstances, it can pay you to have a talk to an experienced finance broker such as PCL Money www.pclmoney.com.au who have been in the industry since 1987.

PCL Money sources loans from a variety of lenders which mean that they are not locked in with any one financial institution but can shop around for the best loan deals on the market for their clients.

With a finance broker such as PCL Money you do not pay any extra hidden commissions. They are often able to source more attractive loans for their clients than their existing bank can offer them.

PCL Money can often provide you with less expensive finance options than the big banks as well as the ability to source loans that have the features and flexibility that best suits your needs.

With over 30 years experience in the finance industry PCL Money can give you expert guidance in the best loan packages for your circumstances whether fixed or variable.

Ask PCL Money about the option to of having a part fixed and part variable interest loan. This is called a split loan and allows you to manage some of the risks of interest rate rises while still being able to make extra repayments.

There’s generally no limit to the way you can split a loan between variable and fixed. You can allocate the funds 50/50 or 20/80 – the decision is up to you.

Whatever loan facility you decide to take out, it needs to be competitive and to work for you.  PCL Money have expanded their panel of lenders and can now offer their clients a much bigger choice.

For 30 years PCL Money has been helping businesses and families achieve financial success. You will find that your needs are there most important consideration.

For friendly and professional service with expert guidance on the best loan deals that are currently available on the market contact PCL Money at pclmoney.com.au or call 02 4226 9977.

 

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Please note that the above is general financial information only and is not intended as personal financial advice for which you should contact a licensed financial professional.

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