So, you’re just about ready to apply for a home loan. Then, you’re pondering the age-old question: should I go with a fixed rate or variable rate mortgage?
Your answer to this question will likely depend on a few key factors, so let’s get into it.
Flexibility vs certainty
Variable rate loans offer flexibility, with the potential of saving money. On the other hand, a fixed rate loan locks you into an agreed interest rate. You need to consider if you want to take on some risk with potential reward, or go with the certainty of a fixed rate.
It is possible to take up a combination of a fixed and variable loan within one loan. Some banks even offer the possibility of splitting your home loan into different accounts.
How will economic conditions affect my interest rate?
The cash rate, set by the Reserve Bank of Australia, is one of the main indicators of the economic situation. In a variable loan, generally speaking, the rise and fall of your interest rate will follow the cash rate. So, whether your rate rises or lowers is completely out of your control, it will be influenced by multiple complex economic principles.
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On the other hand, you may be happy to accept the risk of a rise in hopes the cash rate will drop. As of June 3, the cash rate sits at 0.1%, which, if you look at historical data, is very low.
The cost of borrowing has hardly ever been lower. And, that may make it easier for you to obtain a loan. However, that also means it’s difficult to imagine we see the cash rate – and therefore home loan interest rates – drop much lower. If you’re right on the cusp of applying for a home loan, consider that the current market is quite advantageous to borrowers and it might be a very good time to lock in a solid interest rate.
Alternatively, read more on choosing the right interest rate for your home loan.
Disclaimer: The information provided is general in nature and does not constitute financial advice. Please speak to us for recommendations on your individual circumstances and requirements.