Fixed or Variable Loans?
The process of getting a home loan or mortgage can be a daunting one, especially for those moving from rented accommodation or even those moving away from living with friends and relatives and into more permanent accommodation.
Others may be looking to step into the world of real estate letting and need a loan for their first investment property. Whatever the case this guide should help you consider a few of the different options available to you, as there are many different kinds of home loans and some may be more suitable for your circumstances than others.
Variable Rate Loans
One of the most important aspects of getting a home loan is the kind of arrangement you have in regards to your interest rate. One of the most common kind of loan types is what’s known as a “variable rate” loan which means the percentage of interest you pay is determined by your loan provider and is subject to change at any time.
The advantage of this being that when the rate of interest with your provider is low you will reap the rewards, however when the interest rates begin to climb again you will end up paying more than you were before. They are also popular due to the ability to change providers to suit your financial position, often with no “break up” fee incurred with other kinds of loan.
Fixed rate Loans.
Fixed rate loans are what they suggest ion the name. They are loans given on the basis that the percentage increase of their interest will only increase by a set amount every year making them far easier to predict and manage than other kinds of loans.
However this “interest lock” is ordinarily only for an introductory period which can be anything from 1 to 7 years dependant on provider. It is a popular choice for first time buyers who have to be careful with your finances as it is easier to manage than a variable rate loan and there is far less risk involved in terms of interest fluctuation. But on the whole a fixed rate loan is going to have a higher base rate of interest than Variable Loans.
They are also generally a lot harder to change providers and when you may be charged a “break up” fee as we mentioned earlier. Another thing to also consider is that the longer the period iof repayment for a loan the higher the overall percentage will get as the rate of interest increase incrementally every year.
6 of one, half a dozen of the other
In reality it comes down to what purpose your loan is for and what the purpose your property will serve. If it is a new family with modest means looking for their first buy, the stability of something like a Fixed Rate loan could be beneficial. Alternatively, somebody who is a seasoned property developer who isn’t as interested in the margins so much as the potential saving over the whole repayment term. Then maybe a Variable Rate Loan would be more suitable. If you are still not sure which loans you should go for, you may want further assistance from a home loan provider like Multi-Choice.