Fixed Rate Home Loans Home Loans

Fixed Rate Home Loans

Fixed rate home loans are arguably the most straightforward and easiest to understand of all the different types of home loans available today. Many Australians have used fixed rate loans for their mortgages over the decades and they do have certain advantages.

The concept is simple enough as a fixed rate loan is one where the interest rate will not vary for a period of one to five years. This particular type of mortgage offers an easy way for families to prepare their budgets so that they can cover the premium payments. The rates that are fixed will generally fall slightly below that of the rates found for variable home loans.

Advantages and Disadvantages of Fixed Rate Home Loans

The biggest single benefit provided occurs when interest rates are rising across the board. A fixed rate loan will not be affected by rising interest rates during its one to five year tenure allowing for considerable savings over a variable rate loan. However, if the interest rates should drop during that time, it might mean missing out on keeping hundreds, if not thousands of dollars in your wallet.

Stability: Admittedly, interest rates in Australia have been fairly stable over the past several years which means that fixed rate loans have remained popular, although not quite as much as their variable rate counterparts. Generally speaking, fixed rate home loans are more desirable when the interest rates are rising or in a state of fluctuation when they are difficult to predict.

Compare that to variable rate home loans that are generally more popular when interest rates are flat and steady which means that any dip can be beneficial while any slight rise will not have a great impact. You may need to do a little research first before deciding which type of loan is best for your needs, but the fixed rate loan does offers advantages.

Flexibility: Another advantage of the fixed rate loan is that many lenders will offer some flexibility in how you can pay off the loan at a faster rate. Many of these loans may offer extra repayments or perhaps the ability to redraw facilities. However, such measures will need to be carefully planned or they might fall apart if you do not budget carefully enough.

For those who are considering fixed rate home loans, they will need to read the fine print to ensure what they can and cannot do. For example, many of these loans will not allow refinancing to take place without a fee being charged. However, for those who are on a fixed budget, this is the type of loan that makes perfect sense as it is predictable.

How Long to Set the Fixed Rates

A very important consideration is how long to set the fixed rates which can last from one up to ten years depending on the lender, but the most popular choice has been three years. Once the term ends, you will have three options available.

-       Continue to another term of fixed rates

-       Switch to variable rates

-       Refinance the loan

You can use a home loan calculator to help you do the numbers and decide the best move to make when it comes to fixed rate home loans. 

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