Fixed vs Variable – the Great Debate
Fixed rate home loans
Generally people view fixed rate home loans as a safe but rigid option when looking for surety in terms of monthly commitment, but with flexible new products available, and interest rates at their lowest levels in 7 years, fixed rate loans are a popular discussion topic.
1. Fixed rate home loans now have the flexibility to allow extra repayments and include redraw facilities (some lenders).
2. A fixed rate home loan will give you surety about your monthly commitment in terms of the home loan repayment and are a great option for those who require a carefully managed budget – knowing exactly how much you need to repay means you can plan accordingly and gives you a degree of certainty and security.
3. Choosing the right fixed rate option and term which can be between one and ten years. The most popular fixed-rate loan term is three years.
Variable rate home loans
Variable rate home loans allow flexibility in terms of rates and repayment.
1. Variable rate loans cover the market in terms of features and benefits:
a. Offset products with savings account and credit cards
b. Line of credit products
c. Honeymoon offers
d. Greater overall discounts for higher loan amounts
2. The risk of variable rates is that in an increasing interest rate market the increase in rate will result in an
increase in the monthly repayment.
3. For budget conscious you a higher rate of interest needs to be factored in to ensure affordability.
RBA data illustrates some of the trends in terms of fixed and variable rates:
1. 83% of the time borrowers would have been better off in basic variable rate products than 3 year fixed rate products.
2. 96% of the time borrowers would have been better off with variable rate products when compared to traditional banks 3 year fixed rate products.
3. Borrowers have not been particularly good at picking the best time to fix their rates with peaks in fixed rate approvals often occurring at the worst possible times.
So…What should I do?
Simply put, there is no one right answer for everyone - Your particular circumstance will ultimately determine the options; and integrating this decision into your overall plan is vitally important.
We strongly recommend discussing this key decision with one of Doctors Wealth’s financial advisers, in combination with one of Doctors Wealth’s mortgage specialists to ensure all key aspects are covered. Please call 32528810 to book this complimentary initial meeting.