The fixed rate home loan is exactly what it sounds like. Unlike the standard and basic variable loans, the fixed rate home loan features an interest rate that is negotiated during the loan process and does not fluctuate. The drawback here is that the rates for variable loans can and do dip lower than fixed rates. Even so, there are many home buyers who like the stability of a fixed rate. Fixed rates make it easier to plan for the future, and offer protection against market instability and rising interest rates.

 

Rather than changing with the Reserve Bank of Australia and the lender’s policies, the interest rate on a fixed rate home loan stays the same. This rate is negotiated when the loan is set up and does not change during the life of the loan. Whether a fixed rate or a variable rate is better for you depends on where you think the housing market is going and what your individual financial planning style is. For a more in-depth look at the market and a better idea of the rates currently available, please fill out the contact form below.

 

Advantages of Fixed Rate Home Loans

A fixed rate home loan is perfect for borrowers who don’t want surprises with their monthly mortgage payments. A predictable loan payment amount makes budgeting and financial planning is a lot easier, as opposed to a variable rate where payment amounts can vary with the market. It is very hard to determine where the market will be in the future, so a fixed rate loan is a great tool to alleviate the stress that variable rate loans can cause.

 

Fixed rates aren’t just helpful when planning. If the market becomes volatile, a fixed rate may be essential. It is true that borrowers with variable rates see a savings benefit when rates go down, but these same borrowers can be caught in a disastrous situation if the housing market becomes unstable. It’s an extreme case, but what if a variable rate doubles? Some variable rate loan borrowers may not be able to make payments, causing them to default on the loan and lose the house. Consumers with fixed rate loans do not face this problem.

 

Disadvantages of Fixed Rate Home Loans

Of course, a fixed-rate loan is not as flexible as a variable rate loan. If interest rates drop, a fixed rate borrower could pay more than if they had gotten a variable rate loan. Again, this is a gamble. The best a borrower can do is try to make an educated decision regarding where the market is at the time of a loan. If all factors point to rates dropping, perhaps a variable rate loan is a better approach. But if the borrower is unsure or thinks rates will go up, the fixed rate would be the best bet.

 

Fixed rate loans also typically offer less features than a standard variable rate home loan. There may be penalties for larger payments or more frequent payments over a certain amount. There may also be penalties for paying off the entire loan ahead of time. Fixed rate borrowers need to check with their individual lenders to get the specific details on these fees and possible fines.