Fixed or variable rate?
Looking to invest, purchase a home or refinance? When you’ve decided on your strategy for your purchase, you’ll need to make sure you’ve selected a loan that will maximise your goals for cash-flow and capital growth.
Most financiers often offer fixed or variable rate loans, but which type is right for you? Legal Home Loans does the searching around for you, but it’s beneficial to have an idea of what each loan type offers. Have a read and find out how they work.
Variable interest rates:
A variable interest rate will change over time, as economic conditions cause the Reserve Bank of Australia (RBA) to adjust the cash rate. Some features of a variable rate are:
- It can be good for those investors who aren’t as worried about fluctuations in their repayments
- The loan amount levels can be affected by rate rises or falls – can incur higher or lower monthly repayments as a result (although interest rates often don’t fluctuate by a large amount)
- Can make budgeting difficult due to the uncertainty of loan repayment amounts
- Variable loans often have attractive features such as the ability to save on interest by having an offset account
- You can usually make extra repayments at no extra cost which saves you interest and allows you to pay off the loan sooner
Fixed interest rates:
A fixed interest rate is a great product for investors who want certainty about their outgoing costs and want to make their budgeting as easy as possible. Some features of a fixed rate are:
- You can match the loan terms and products to the length of time you anticipate owning the property
- One of the downfalls of fixed-rate products is that they don’t offer the same product features as variable rates i.e. making extra repayments is not possible with most products
- If interest rates rise or drop below your fixed rate – it will not affect you.
- A break fee may apply if you want to change or pay off your loan within the fixed rate period
Splitting your loan:
Another option to get the best of both worlds is by having a part fixed and part variable interest loan! #winning It allows you to be able to make extra repayments but also have the security of a fixed rate for part of the loan.
If you select the wrong lender you may not be able to afford the investment property that matches your investment goals. It’s important to speak to a mortgage broker early in your search (hint – Legal Home Loans) so they can outline and explain the lenders and products that will have the most competitive options for you!
Legal Home Loans are experts in finding the most competitive rates and tailored packages for Sydney lawyers, offering exclusive discounts including waived LMI. Give us a call or pop us an e-mail today for further information.