When in the early home buying process stages and after you have spoken to your mortgage broker, you might find they will recommend going for a fixed rate home loan product or a variable rate home loan product. If you are talking with an experienced mortgage broker they will propose to you their findings of what the most suitable option for you may be and you find yourself a bit unsure whether a fixed or variable rate will be right for you.
Fixed rate home loans have an interest rate that is fixed for a set period of time – usually between 1 and 3 years to which you as the client agrees to at the start of the application process. At the end of the fixed rate term the loan will automatically switch to the standard variable rate offered by the lender – but if you have a good mortgage broker on your side you won’t need to worry as they will touch base with yourself prior to the fixed rate period coming to an end. This will ensure you are set up with the best possible and most suitable product for your situation.
A couple of bad points with fixed rate loan products are that most lenders will not allow for offset accounts to be attached to their loan products therefore not this might not be the most suitable option for you and your long term goals. In some cases there have been people who have had a fixed rate in place and over time the standard variable rate has dropped below what the fixed rate locked in is. When this happens you are usually locked in because the break fees will cost more than what the total amount of repayments will set you back. It is also recommended for mortgage brokers to offer what is called a Rate Lock to all clients, should the fixed rate rise after the application process has been started and before settlement occurs this rate lock will ensure the client gets access to the lower rate, however should rates drop the lender will honour the change.
With variable rate home loans interest rates can rise or fall over life of the loan and as a result of this the repayments will vary as the rate changes take effect. If you sell, refinance or even break the loan you will not be up for penalties having a variable rate product in place as you may be up for if you otherwise have a fixed rate product in place.
Lenders from time to time will offer aggressive fixed rate products sharper than other lender products on the market to build their customer base for the greater term.
If you have a question regarding anything specific about fixed and variable rate loans, click here to talk to your finance broker Gerry as he will be able to assist with answering any questions.