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Mortgage featured stories

Fixed V’s Variable Interest Rates – Pro’s and Con’s

Home Finance, Investment Loans, Tips
Share
With Australia currently enjoying historically low interest rates there are many borrowers asking themselves “should I fix the interest rate on my home loan?” Indeed at many social functions the topic of interest rates is often raised and it seems that there are many views and opinions on the best strategy, which just adds to the confusion for many of us.
An important point here is that no one can accurately predict what will happen with interest rates in the medium to long term.  There are just simply too many economic variables that can influence interest rates and that makes predicting movements with any certainty an impossible science. So, what are the benefits and drawbacks of each option? Fixed Rates In the current low rate environment we are continuing to see 1 to 5 year fixed interest rates at historically low levels.  Many lenders appear to be promoting low fixed rates as a tool to attract new borrowers.  But there are both pros and cons in fixing your loan interest rates. The main benefit is a fixed interest rate gives you certainty in your repayments and therefore your household budgeting.  You know what your repayments will be each fortnight or month for the period your rate is fixed.  This is particularly attractive if household finances are tight and any upward rate movement could have a detrimental impact on your lifestyle choices. However there are also elements of fixed rate agreements that may not be so attractive including:
  • If interest rates fall you may be left making loan repayments at a higher level than many other borrowers.
  • There may be penalties with repaying or refinancing fixed rate loans before the expiry date of the fixed term. These penalties are normally at their greatest when interest rates have fallen since committing to a fixed rate.  So before considering a fixed rate take into considerations your plans over the next few years (i.e. will you be looking to sell and relocate?).
  • Many loan features such as Loan set off accounts or redraw facilities may not be available for fixed rate loans, reducing the overall flexibility of the loan.
  • Additional or voluntary loan repayments can be restricted for fixed rate loans. So if you are looking to rapidly reduce your loan you may be restricted in your ability to do so.  It is not uncommon for any additional repayments to be restricted to say $10,000 p.a., but each lender is different and if this is important to you, makes sure you do your research.
Variable Rate Variable Rate loans generally offer greater flexibility, but as their name suggests, the interest rate can move at the discretion of the lender.  Historically rate movements were aligned to Reserve Bank (RBA) changes in the official cash rate.  However over recent years we have seen many Banks adjust rates independent of RBA changes as they attempt to manage their own cost of funds and broader market impacts. Like fixed rates, there are currently some very attractive discounted variable rates on offer in the market by lenders attempting to build market share. In falling interest rate environments borrowers with variable rate loans can experience reductions in their interest rates and therefore lower repayments, but similarly, as rates increase variable rate borrowers incur additional repayment costs each time interest rates are increased. The main benefit of variable interest rate loans is that borrowers normally can expect greater features and flexibility.  So if aspects such as being unlimited in the level of additional repayments you can make along with having loan set off and redraw facilities are important, then chances are you will find the terms of variable interest rate loans more attractive. Split Loans Borrowers who see the benefit in both fixed and variable rates options may consider a split loan. A split loan simply refers to splitting your loan between part fixed interest and part variable interest loan options.  Effectively borrowers have two loans with one being fixed and the other being variable. Under such scenarios it is recommended that borrowers consider any additional costs in holding two loans rather than just one and still ensure they are aware of all conditions of the fixed rate component. Summary So, should you consider fixing the interest rate on your loan? The simple answer is that there is no ‘one size fits all’ response to this question.  Before making a decision your individual financial position, risk appetite, preferred features and future plans should be taken into consideration. Certainly in the current environment there are many who would consider the fixed rates on offer as worth thinking about, but committing to such a decision should only be made after careful consideration of your personal position. Your local Mortgage Broker can provide assistance in working through the options on offer and help you establish what will suit your personal circumstances.

More Stories

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Mortgage featured stories

Fixed V’s Variable Interest Rates – Pro’s and Con’s

Home Finance, Investment Loans, Tips
Share
With Australia currently enjoying historically low interest rates there are many borrowers asking themselves “should I fix the interest rate on my home loan?” Indeed at many social functions the topic of interest rates is often raised and it seems that there are many views and opinions on the best strategy, which just adds to the confusion for many of us. An important point here is that no one can accurately predict what will happen with interest rates in the medium to long term.  There are just simply too many economic variables that can influence interest rates and that makes predicting movements with any certainty an impossible science. So, what are the benefits and drawbacks of each option? Fixed Rates In the current low rate environment we are continuing to see 1 to 5 year fixed interest rates at historically low levels.  Many lenders appear to be promoting low fixed rates as a tool to attract new borrowers.  But there are both pros and cons in fixing your loan interest rates. The main benefit is a fixed interest rate gives you certainty in your repayments and therefore your household budgeting.  You know what your repayments will be each fortnight or month for the period your rate is fixed.  This is particularly attractive if household finances are tight and any upward rate movement could have a detrimental impact on your lifestyle choices. However there are also elements of fixed rate agreements that may not be so attractive including:
  • If interest rates fall you may be left making loan repayments at a higher level than many other borrowers.
  • There may be penalties with repaying or refinancing fixed rate loans before the expiry date of the fixed term. These penalties are normally at their greatest when interest rates have fallen since committing to a fixed rate.  So before considering a fixed rate take into considerations your plans over the next few years (i.e. will you be looking to sell and relocate?).
  • Many loan features such as Loan set off accounts or redraw facilities may not be available for fixed rate loans, reducing the overall flexibility of the loan.
  • Additional or voluntary loan repayments can be restricted for fixed rate loans. So if you are looking to rapidly reduce your loan you may be restricted in your ability to do so.  It is not uncommon for any additional repayments to be restricted to say $10,000 p.a., but each lender is different and if this is important to you, makes sure you do your research.
Variable Rate Variable Rate loans generally offer greater flexibility, but as their name suggests, the interest rate can move at the discretion of the lender.  Historically rate movements were aligned to Reserve Bank (RBA) changes in the official cash rate.  However over recent years we have seen many Banks adjust rates independent of RBA changes as they attempt to manage their own cost of funds and broader market impacts. Like fixed rates, there are currently some very attractive discounted variable rates on offer in the market by lenders attempting to build market share. In falling interest rate environments borrowers with variable rate loans can experience reductions in their interest rates and therefore lower repayments, but similarly, as rates increase variable rate borrowers incur additional repayment costs each time interest rates are increased. The main benefit of variable interest rate loans is that borrowers normally can expect greater features and flexibility.  So if aspects such as being unlimited in the level of additional repayments you can make along with having loan set off and redraw facilities are important, then chances are you will find the terms of variable interest rate loans more attractive. Split Loans Borrowers who see the benefit in both fixed and variable rates options may consider a split loan. A split loan simply refers to splitting your loan between part fixed interest and part variable interest loan options.  Effectively borrowers have two loans with one being fixed and the other being variable. Under such scenarios it is recommended that borrowers consider any additional costs in holding two loans rather than just one and still ensure they are aware of all conditions of the fixed rate component. Summary So, should you consider fixing the interest rate on your loan? The simple answer is that there is no ‘one size fits all’ response to this question.  Before making a decision your individual financial position, risk appetite, preferred features and future plans should be taken into consideration. Certainly in the current environment there are many who would consider the fixed rates on offer as worth thinking about, but committing to such a decision should only be made after careful consideration of your personal position. Your local Mortgage Broker can provide assistance in working through the options on offer and help you establish what will suit your personal circumstances.

More Stories

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Mortgage featured stories

Fixed V’s Variable Interest Rates – Pro’s and Con’s

Home Finance, Investment Loans, Tips
Share
With Australia currently enjoying historically low interest rates there are many borrowers asking themselves “should I fix the interest rate on my home loan?” Indeed at many social functions the topic of interest rates is often raised and it seems that there are many views and opinions on the best strategy, which just adds to the confusion for many of us. An important point here is that no one can accurately predict what will happen with interest rates in the medium to long term.  There are just simply too many economic variables that can influence interest rates and that makes predicting movements with any certainty an impossible science. So, what are the benefits and drawbacks of each option? Fixed Rates In the current low rate environment we are continuing to see 1 to 5 year fixed interest rates at historically low levels.  Many lenders appear to be promoting low fixed rates as a tool to attract new borrowers.  But there are both pros and cons in fixing your loan interest rates. The main benefit is a fixed interest rate gives you certainty in your repayments and therefore your household budgeting.  You know what your repayments will be each fortnight or month for the period your rate is fixed.  This is particularly attractive if household finances are tight and any upward rate movement could have a detrimental impact on your lifestyle choices. However there are also elements of fixed rate agreements that may not be so attractive including:
  • If interest rates fall you may be left making loan repayments at a higher level than many other borrowers.
  • There may be penalties with repaying or refinancing fixed rate loans before the expiry date of the fixed term. These penalties are normally at their greatest when interest rates have fallen since committing to a fixed rate.  So before considering a fixed rate take into considerations your plans over the next few years (i.e. will you be looking to sell and relocate?).
  • Many loan features such as Loan set off accounts or redraw facilities may not be available for fixed rate loans, reducing the overall flexibility of the loan.
  • Additional or voluntary loan repayments can be restricted for fixed rate loans. So if you are looking to rapidly reduce your loan you may be restricted in your ability to do so.  It is not uncommon for any additional repayments to be restricted to say $10,000 p.a., but each lender is different and if this is important to you, makes sure you do your research.
Variable Rate Variable Rate loans generally offer greater flexibility, but as their name suggests, the interest rate can move at the discretion of the lender.  Historically rate movements were aligned to Reserve Bank (RBA) changes in the official cash rate.  However over recent years we have seen many Banks adjust rates independent of RBA changes as they attempt to manage their own cost of funds and broader market impacts. Like fixed rates, there are currently some very attractive discounted variable rates on offer in the market by lenders attempting to build market share. In falling interest rate environments borrowers with variable rate loans can experience reductions in their interest rates and therefore lower repayments, but similarly, as rates increase variable rate borrowers incur additional repayment costs each time interest rates are increased. The main benefit of variable interest rate loans is that borrowers normally can expect greater features and flexibility.  So if aspects such as being unlimited in the level of additional repayments you can make along with having loan set off and redraw facilities are important, then chances are you will find the terms of variable interest rate loans more attractive. Split Loans Borrowers who see the benefit in both fixed and variable rates options may consider a split loan. A split loan simply refers to splitting your loan between part fixed interest and part variable interest loan options.  Effectively borrowers have two loans with one being fixed and the other being variable. Under such scenarios it is recommended that borrowers consider any additional costs in holding two loans rather than just one and still ensure they are aware of all conditions of the fixed rate component. Summary So, should you consider fixing the interest rate on your loan? The simple answer is that there is no ‘one size fits all’ response to this question.  Before making a decision your individual financial position, risk appetite, preferred features and future plans should be taken into consideration. Certainly in the current environment there are many who would consider the fixed rates on offer as worth thinking about, but committing to such a decision should only be made after careful consideration of your personal position. Your local Mortgage Broker can provide assistance in working through the options on offer and help you establish what will suit your personal circumstances.

More Stories

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Is a tree or sea change on your horizon?

News
Is a tree or sea change on your horizon? Fresh air, no bumper-to-bumper traffic and more affordable home prices. There’s plenty of appeal in regional living, including a chance to potentially reduce your home loan.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

Why three-in-four Aussies turn to a broker for home loan help

News
Why three-in-four Aussies turn to a broker for home loan help You might have seen a headline or two about a particular big bank being at war with brokers. Nothing could be further from the truth. Our mission is – and always will be – putting you first. That’s why three in every four borrowers now come to us for help.

First home buyers turn to Bank of Nan and Pop

News
First home buyers turn to Bank of Nan and Pop Nan and Pop have always been good for birthday money, but one-in-10 grandparents are taking their generosity to the next level: helping their grandkids buy a first home.

First home buyers turn to Bank of Nan and Pop

News
First home buyers turn to Bank of Nan and Pop Nan and Pop have always been good for birthday money, but one-in-10 grandparents are taking their generosity to the next level: helping their grandkids buy a first home.

First home buyers turn to Bank of Nan and Pop

News
First home buyers turn to Bank of Nan and Pop Nan and Pop have always been good for birthday money, but one-in-10 grandparents are taking their generosity to the next level: helping their grandkids buy a first home.

What you should know before buying ‘subject to finance’

News
What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

What you should know before buying ‘subject to finance’

News
What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

What you should know before buying ‘subject to finance’

News
What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

What you should know before buying ‘subject to finance’

News
What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

What you should know before buying ‘subject to finance’

News
What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

What you should know before buying ‘subject to finance’

News
What you should know before buying ‘subject to finance’ Not sure if you’ll get the thumbs up for a home loan? But you really, really like that house that just popped up? Making an offer ‘subject to finance’ could be the right move. Here’s how it works.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Not feeling the budget love? 4 ways you could still get ahead

News
Not feeling the budget love? 4 ways you could still get ahead If the latest federal government budget is leaving you hungry for perks and savings, you’re not alone. We’ve had a brainstorm and here are four ways you could start working towards your property goals now.

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Low deposit scheme helps over 150,000 families buy sooner

News
Low deposit scheme helps over 150,000 families buy sooner Whether you’re rat running your local streets, or have a knack for always picking the fast-moving supermarket queue – everyone loves a good time-saving hack. Well, today we’ll let you in on a scheme that could get you into your first home years – yep years – sooner!

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

Here’s why your borrowing power might soon get a lift

News
Here’s why your borrowing power might soon get a lift Who doesn’t love a tax cut? Most of us are now only weeks away from saving on our tax bills, with Stage 3 tax cuts to kick in from 1 July. But another key advantage is that the tax cuts could give your borrowing power a nice boost.

How to know if you’re paying a fair price

News
How to know if you’re paying a fair price We all love the idea of nabbing a bargain property, but for most home buyers the real issue is whether they’re overvaluing a place – and paying too much in the process.

How to know if you’re paying a fair price

News
How to know if you’re paying a fair price We all love the idea of nabbing a bargain property, but for most home buyers the real issue is whether they’re overvaluing a place – and paying too much in the process.

How to know if you’re paying a fair price

News
How to know if you’re paying a fair price We all love the idea of nabbing a bargain property, but for most home buyers the real issue is whether they’re overvaluing a place – and paying too much in the process.

Can you remember your home loan interest rate?

News
Can you remember your home loan interest rate? Where you put your car keys, who won the footy premiership three years back, the new prime minister of New Zealand’s name – all very much socially acceptable things to forget. Your home loan rate shouldn’t be on that list.

Can you remember your home loan interest rate?

News
Can you remember your home loan interest rate? Where you put your car keys, who won the footy premiership three years back, the new prime minister of New Zealand’s name – all very much socially acceptable things to forget. Your home loan rate shouldn’t be on that list.

Can you remember your home loan interest rate?

News
Can you remember your home loan interest rate? Where you put your car keys, who won the footy premiership three years back, the new prime minister of New Zealand’s name – all very much socially acceptable things to forget. Your home loan rate shouldn’t be on that list.