As a home loan borrower there are many types of home loans, each with its own interest rate, fees and lets not forget the pros and cons.
Each of these types of loans affect how much the loan costs and whether it suits your home loan goals. A Home Loan is different to a personal loan as you have the option to place it on a fixed, floating rate term or a mix of both.
It can be daunting for a home loan borrower so have a read through and contact us to know more!
Floating (Variable) rate
Floating Rate or Variable Rate Loans is where banks/ lenders can at anytime either increase or decrease the rate for this type of loan, which will mean your loan repayments will go up or down depending on the movement.
• You can pay off your loan at anytime on this type or make changes without incurring a penalty fee.
• You can make extra payments when you like without incurring a penalty fee.
• You can choose to fix all or a portion of this loan on a fix rate loan whenever you choose without incurring a penalty fee.
• It can be difficult to budget with certainty as your loan repayments for this loan type can increase or reduce when your bank decides to change their floating rate.
• Floating Rates have been historically higher than advertised fixed rates which means it could cost you more having it on this type.
A fixed rate home loan offers you the ability to lock in the rate offered for that period. The fix rate periods offered by banks range from six months to five years. Your loan repayments will then remain the same for that fix rate period.
• The loan repayments will stay the same for the fix rate period and so it is easier manage your budget.
• The fix rates are generally cheaper than floating rates, particularly with fix rate specials but these come with conditions.
• If you are on a fixed rate, your rate does not increase if your bank raises its home loan rates.
• You may incur a penalty fee or break fee if you fully or partially pay off this type of loan.
• Additional loan repayments are often not allowed or they maybe limited at a low amount and permitted with a fee.
• You will not benefit if your bank decides to reduce their interest rates. Your fix rate will remain the same for the period you have chosen to fix regardless of what your bank has advertised.
You can choose to break your fix rate and change to a lower rate but this may incur a penalty fee or break fee. It will pay to do the numbers before you do this as it may prove more expensive to take the lower rate but pay an excessive penalty fee or break fee.