Tuesday 3rd November 2020
If you’re looking for a home loan there are limitless options available to you in terms of lender, structure & requirements. One of the most important ways in which home loans vary is in the repayments. There are three main types of repayment options for home loans; fixed, variable and split. Each has its own unique features so it is worth being aware of what the differences are before you decide on which one to apply for.
Fixed Home Loans
Fixed loans are loans where the amount you pay each month does not change regardless of economic conditions or your ability to pay. The advantage of them is that you know exactly what you need to budget for when you apply for one as you will never pay more or less on your monthly repayments. The other advantage is that if interest rates do rise during the loan term the interest rate on your home loan will be unaffected. The downside of this is that if they end up decreasing then you are stuck with the interest rate you agreed to at the beginning of the loan term.
Variable Home Loans
A variable home loan has varying interest rates unlike fixed home loans. Similarly, this can also be an advantage or disadvantage depending on how interest rates change during the loan term. Therefore it is important to make sure you have some capacity to afford higher variable home loan repayments if interest rates were to rise. The main advantage of variable loans is the greater flexibility you get to make extra repayments, a redraw facility and an offset account.
Split Home Loans
A split home loan is a mixture of both fixed and variable. In a split loan you can make part of the loan term fixed, and another part variable, hence the term split. This allows you to get the best of both worlds rather than limiting yourself to a single loan type.
The main home loan types are fixed, variable and split loans. Each has their individual differences so it is important to understand each before you apply for a loan.
If you would like to learn more about fixed, variable or split home loans please get in touch with us today.