Variable rate home loans – Variable rate home loans are the most popular type of home loan in Australia. They provide additional flexibility, but the interest rate varies according to the Reserve Bank of Australia’s interest rate changes and individual bank’s costs associated with sourcing funds to lend.
Variable rate mortgages are generally broken into two categories: basic and standard.
– Standard variable rate home loans usually offer an offset account(i).
– Basic home loans are a “no frills” loan but have improved significantly over the years and now provide a low cost option for many borrowers, as they usually offer a slightly lower interest rate and lower fees.
Fixed rate home loans – If you prefer budget certainty a fixed rate loan may suit your needs. As your repayments will not change during the fixed rate period it can help you plan and maintain your household budget. However, you could end up paying more than a variable rate product if interest rates fall – it’s possible to exit loan agreements in this situation, but there’s usually a penalty fee. So if you enter into a fixed rate loan agreement you need to do so with the expectation of seeing out the fixed term.
Combination home loans – Unsure whether to go fixed or variable? Perhaps a combination of both loans will suit your needs. Many lenders offer this option with the borrower able to nominate what percentage of the loan is fixed or variable. (i.e. 60/40;50/50 etc.)