Your Finance Adviser

There are several home loan packages available to choose from at any given time. Therefore, it can be challenging to determine which home loan type is right for your individual needs. This can be confusing, however, to make your task easier, we give you an insight into the fixed, variable or split rates which can help you decide your right pick!

All home loans apart from interest-only loans have two essential factors; principal and interest. The principal is the amount borrowed, and interest is the amount paid to borrow the money. Consequently, you have a choice amidst three key types of interest repayments:

FIXED RATE LOANS 

Fixed rate home loans have an interest rate that is fixed for a set period of time - often 1, 3 or 5 years. At the end of the fixed rate term, the loan will usually switch to the standard variable rate offered by the lender. 
 
This type of loan surely makes budgeting easier .You know exactly what your repayments will be, so you can plan ahead and set financial goals with confidence. You could emerge profitable if the rates rise in the interim as this will remain constant and, you will be happy knowing you are paying less than the variable rate.

But on the other hand, if the rates drop, this means you may not benefit either.

VARIABLE RATE LOANS 

Variable home loans are very common loans offered by lenders and bankers. Most first time home buyers opt for this loan. This type of loan starts with a lower interest rate however, after a fixed time, the rate fluctuates according to the market index, as set by the Reserve Bank. It means the interest rates move up or down as per the market. Generally, repayment term is upto thirty years. You are allowed flexibility of repayment options, however, you could end up with fewer features than general loans.

SPLIT RATES HOME LOANS

A split home loan gives you the best of both worlds. A split loan calculatorlets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. Fixed rates offer certainty about repayments, which is ideal for tight budgets, while also protecting against possible rate rises. Of course, as most things in life, split loan too are a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you did not fix!

Variable home loans give flexibility to take advantage of low rates by making additional repayments to pay your mortgage plus the benefit of any further rate drops if your lender passes them on.

Below can be termed as the best advantages if you opt for a Split Rate:

• Security: The fixed component of the loan lets you manage the risk of interest rate fluctuations, protecting you from sudden interest rate rise
• Flexibility: Though more risky, the variable component of the loan allows you to take advantage of potential interest rate fall

Apart from fixed, variable, and split loans, you may encounter basic, standard, and packaged loans. A basic loan is a variable rate home loan offering you the lowest rate possible with no features. However, the definition of a basic loan varies from lender-to-lender. So, it is worthwhile reviewing terms and conditions, rather than plunging into the mortgage deep-end.

When determining which loan type is right for you, there is no right or wrong solution and it totally depends on your individual needs. For whichever loan type you wish to opt for, always take guidance from your finance adviser who can help to find a competitive mortgage best suited for your requirement.