Fixed or Variable?
Friday October 24, 2008
When you approach the mortgage company, do fixed rate mortgage home loans have the advantage over variable rate mortgage home loans, or vice versa? This is a difficult question to answer, as the specific differences between the two will vary from mortgage company to mortgage company. Nevertheless, there are certain disadvantages and advantages to each that tend to remain similar in every mortgage company.
Fixed rate mortgage home loans
Fixed rate mortgage home loans on offer right now will often have a lower rate than the current variable rate. This is specifically designed to attract customers, though, as it factors in the likelihood of rate drops in the near future. Considering how quickly rates are dropping, a variable rate in a few months time could easily be much lower than a fixed rate now. Coupled with the usual restrictions on extra repayments that accompany fixed rate mortgage home loans, there is currently very little advantage to fixed rates unless interest rates unexpectedly climb again in the very near future.
Fixed rates do offer stability, however, and some people value stability more than savings. If you want to be sure about the repayments you will be required to pay over the next few years regardless of how the official interest rate moves, then you may want to consider fixed rate mortgage home loans.
Variable rate mortgage home loans
Variable rate mortgage home loans can be great to have while interest rates are still dropping, as interest payments will continue to get lower as the interest rate continues its descent. You will also usually not be limited in the amount of extra repayments you can make, so you can potentially save thousands on interest by repaying faster than absolutely necessary.
If interest rates unexpectedly rise, though, a variable rate can quickly rise to an unmanageable point. Even when interest rates are falling, be sure not to overextend yourself in what you buy. You will likely have good and bad times in terms of interest payments over the life of a home loan, so set yourself up to survive the hard times as well as the good.
Please visit our comparison page to compare home loans and mortgages or to find an Australian mortgage company.
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