Which interest rate should I choose for my mortgage?
If you’re looking to build or buy a house in Bunbury or surrounds in Western Australia, there will be a couple of options to choose from depending on your lender and their terms and conditions.
It’s important to understand the pros and cons for both so you can make the right decision. The Mortgage Brokers at Allen Finance will supply you with the options and help guide you to make the best decision, but here we put you in the driver’s seat with all of the relevant information.
Fixed Rate Mortgages - what are the pros and cons?
This home loan has an interest rate that remains the same for the entirety of the fixed period. That means that no matter what is happening with the Reserve Bank of Australia and the cash rate, or what other lenders are doing - your interest rate will stay the same for the time period agreed
Pros:
Budgeting | When you know exactly what your repayments will be for the foreseeable future, you can budget accordingly and you never have to worry about fluctuations in what you owe and not having enough money in the bank to pay your mortgage.
Predictability | Being 100% certain of your repayments means you can compare other options and make decisions based with that amount in mind.
Cons:
Inflexibility | A fixed rate mortgage means that when interest rates drop, yours will stay the same and you won’t reap the benefits of lower repayments that you could with a variable rate.
Breaking your contract | Should you choose to refinance or sell your home and break the contract, there may be fees and charges associated with doing so. This depends on your lender’s payout figure, which can only be calculated at the time you are wanting to break that fixed term agreement.
Early repayments | If you surge ahead with your repayments to really knock down the loan ahead of time, the lender could restrict you from exiting early without paying fees.
Variable Rate Mortgages - what are the pros and cons?
This is a home loan with an interest rate that can change over the life of the loan. Depending on decisions made by the Reserve Bank of Australia and your lender, the interest rate on your mortgage can go up and/ or down multiple times throughout the life of the loan.
Pros:
Flexibility | When the cash rate drops, your lender will most likely pass on those savings to you with a decreased interest rate so that your repayments lower.
Early completion | If you work to pay off your loan ahead of time, or if you want to refinance, there are usually much more flexible terms and conditions around exit fees and charges.
Cons:
Rate increases | whereas with a fixed rate mortgage, if the cash rate increases your loan won’t be affected, the opposite happens with a variable rate. The same way you benefit from cost savings with a lowered rate, you will most likely see fluctuations with increases that raise your repayments.
If you’d like to speak to an Allen Finance Mortgage Broker to understand what options are open to you, get in touch today.
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