Canberra & Perth
Menu
Canberra & Perth
These are, in simpler term, rates at which borrowers borrow from the lenders for the purpose of buying a home. They ultimately determine the over all cost of borrowing money for a home purchase.
These loans have interest rates that do not change over the term of the loan. This means your monthly mortgage payments will stay the same, making budget planning easier since you’ll know exactly what you owe every month, without worrying about interest rates going up or down.
With these loans, the interest rates can change over time. This means your monthly payments could go up or down based on the current market interest rates. It’s a bit of a gamble because you might end up paying less if the rates go down, but you could also face higher payments if the rates increase.
Variable-rate loans come in two flavors:
Basic Variable Rate
This option typically offers lower interest rates with minimal features, such as the ability to make extra payments to pay off your loan faster. However, it usually only includes a redraw facility, allowing you to withdraw any extra repayments you’ve made.
Standard Variable Rate
This is a more feature-rich option that includes both a redraw facility and an offset account, which can help reduce the amount of interest you pay. However, lenders’ policies vary; some may enforce either higher interest rates or additional fees between $8 and $15, or an annual fee of $395, while others may impose both higher interest rates and additional fees.
A split home loan allows you the flexibility to divide your mortgage into two or more portions, enabling you to manage part of your loan with a fixed interest rate and part with a variable rate or between two variable rates. The idea behind this arrangement is to hedge your bets against interest rate fluctuations, capturing the best of both worlds.
Here’s how it works and why it might be beneficial:
1. Fixed-Rate Portion
This part of your loan locks in an interest rate for a certain period, which can provide stability and predictability to your budget. You won’t benefit from a drop in interest rates for this portion of the loan, but you also won’t suffer from rate increases.
2. Variable-Rate Portion
The variable section of the loan offers the possibility of benefiting from lower interest rates if market rates decrease. Conversely, you also bear the risk of rate increases. This portion provides more flexibility, often with the ability to make additional repayments without penalty, potentially saving you interest and reducing the loan term.
3. The split loan option
offers a combination of both fixed and variable features, providing a balance between stability and flexibility. The ability to choose the split ratio allows you to customize the loan depending on your financial situation, your risk tolerance, and your future plans. Some borrowers might prefer a higher proportion of fixed rate to ensure more predictable repayments, while others might opt for a larger variable portion to capitalize on the potential for lower rates and greater repayment flexibility.