Finance
Whether a fixed or variable rate loan is better for you will depend on your individual situation. Here we'll walk you through the pros and cons of each option to help you decide which rate type is right for your needs.
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Fixed rate home loans are exactly that, a loan with an interest rate that is fixed and does not fluctuate. This fixed rate means your repayments will stay the same on your home loan for the term of your fixed-rate period.
A fixed rate period can last between 1 and 5 years, depending on your lender. After your fixed period ends, it will typically switch to a variable rate loan.
Speak to one of Lendi’s Home Loan Specialists to discuss your options.
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A variable rate loan is a loan where the interest rate you are charged can fluctuate at any time as interest rates change.
These rates can rise or fall in accordance with the Reserve Bank of Australia cash rate changes as well as a number of other factors. Recently some lenders have increased their rates due to a rise in their funding costs (simply, the cost of borrowing money).
Most lenders offer a standard or basic variable loan. Standard variable loans offer the flexibility of a variable loan as well as additional features such as offset accounts, redraw facilities and the option to split the loan.
While a basic variable loan offers a variable rate, without the extra features of the standard variable rate loan, meaning it can be a cheaper alternative.
Use Lendi’s home loan repayment calculator to see how much you can expect to pay if interest rates rise.
Split rate home loans can offer the benefits of both fixed rate and variable loans.
A split rate home loan allows you to split your loan into portions and repay one part at a fixed rate and the remaining part at a variable rate.
If you split your loan, one part of your loan will remain fixed and unchanged by interest rate fluctuations, while the other part will be affected if interest rates rise or fall. On this variable portion, you will be able to make extra repayments and also have access to offset accounts and redraw facilities.
You can split your loan 50:50, but the decision is entirely up to you, the borrower. The hardest decision is what proportion you wish to split your loan into. A Home Loan Specialist can help you structure your loan based on your individual needs.
What to know more? Read Lendi’s guide to split rate home loans for more information.
There are a number of things to consider when choosing the type of home loan that works best for you. If you are not sure which of these options is best suited to your situation, discuss your options in more detail with one of Lendi’s Home Loan Specialists for free, expert advice.
Choose a time for one of our Home Loan Specialists to call you.
Offset accounts and redraw facilities are features of a variable rate home loan that can help you reduce the amount of interest you'll pay over the term of your home loan.
An offset account is an everyday transaction account connected to your home loan. Its purpose is to offset the amount owing on your home loan and help reduce the amount of interest you pay.
For example, if you have $20,000 sitting in an offset account and $400,000 owing on your home loan, you will only be charged interest on $380,000.
Keep in mind that most lenders charge an annual fee for an offset account. Use an offset account calculator to find out how much you could save.
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Similar to an offset account, a redraw facility can help reduce the interest you pay in a similar way to offset accounts.
Redraw facilities allow you to make extra repayments (above the minimum required amount). The excess payments go into a redraw facility that you may access in times of financial need.
For example, if your required home loan repayment amount is $2,000 per month, and you pay $2,250 each month for a year, you will have $3,000 in your redraw facility.
Depending on your lender, there may be some restrictions such as fees for withdrawing, limiting the number of withdrawals or a minimum amount per withdrawal.
Redraw accounts and offset facilities can be subject to activation and ongoing fees. If the lender fees outweigh the interest saved, then opening one of these accounts may not be in your best interest. Chat with a Home Loan Specialist to see if either of these are a good fit for your situation.
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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
Tags: new purchase, refinance, fixed rate home loans, variable interest, interest rate, first home buyer
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