October 21, 2017

Fixed Rate Home Loan vs Variable Rate Home Loan

Are you planning to buy a house in the near future? One of the main things to do when it comes to home loans is to compare mortgage rates. You can use a home loan calculator that can give estimates on your monthly mortgage repayments and other details. Another thing to look into is the type of home loan. In general, it can be a fixed rate home loan or a variable rate home loan. Of course, each has its own share of pros and cons. In this article, let’s take a look at the features, benefits, and drawbacks of these loan types:

Fixed Rate Home Loan

As the name implies, this type of loan comes with a fixed interest rate for a particular period that can be one year, three years or even five years.

One of the advantages is that since it has a fixed rate, you already know how much you need to pay on a regular basis, enabling you to manage your finances and work around your budget. Also, in case there is an increase in interest rates, you will not be affected.

Now here are the drawbacks of getting a fixed rate home loan. First of all, it said that you will not be affected by rate increase. But the downside is, you will not be able to take advantage of interest rate drops which can make your mortgage repayments lower. Also, you may not be able to redraw as this facility may not be available on this loan type. In case you found a better home loan deal and you want to change your loan, a fixed rate home loan may come with a break fee.

Variable Rate Home Loan

Unlike the fixed rate home loan, the variable rate home loan is affected by interest rate fluctuations. Your loan’s interest rate will move depending on the market rates. This leads to variations in your monthly repayments.

One of the benefits of this loan type is that extra repayments are allowed without additional costs. Making extra repayments can help you pay off your home loan sooner than expected, plus save on interest. It is also easy to switch home loans in case you’ve found something better. The variable rate home loan likewise offers other features such as unlimited redraws on extra repayments as well as setting up an offset account, helping you save on interest.

Of course, since your monthly repayments vary, it can make budgeting more difficult. What’s worse is that you may not be able to keep track and make your mortgage payments if you’re not aware of interest rate increase.

Got other ideas on mortgage repayments and interest rate comparison? Share your tips in the comments section.

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Things to Consider when You Refinance Your Home Loan

If you think that switching to a new home loan or lender to lower your mortgage repayments, think again. Refinancing can be expensive if you’re not careful. There are various reasons why people want to refinance their home loans. As needs change over the years, the mortgage that was suitable before may not fit their situation now.

Think long and hard before you refinance. It’s not as easy as getting the cheapest home loan possible, or whichever proves to be more convenient for you. Here are several things to consider before making the switch:

Know when to refinance

Replacing your current home loan with a new one comes with several advantages. Most people refinance when they need to secure a home loan with a lower interest rate, while some look for improved loan features.  There are also homeowners who are planning to renovate or get a major purchase, and refinancing their home loans will enable them to access home equity to get funds.

Do your research

There’s more to refinancing that just getting a lower interest rate. Make sure that you will benefit from the shift. Compare home loans offered by different providers. It is likewise important to compare mortgage rates. You can also use a home loan calculator so you’ll have an idea on how much your repayments will be and if these can actually help you manage your finances.

Check the conditions of your current home loan

Moving to a new loan or lender is not free. Make sure to look at the conditions stated in your existing home loan to see what the costs of refinancing are. Consider charges like exit fees, deferred establishment fees, as well as break costs.

Consolidate debts

Another reason why many people refinance their home loans is that they will be able to consolidate their debts including credit card and other loans. Debt consolidation can reduce your monthly repayments while getting a new home loan with a better price. When refinancing, take a look at this feature and see if this will work well for you.

Bear in mind that getting a lower rate is not the sole reason to refinance. Ask family and friends who have experience with refinancing so you will have an idea of what it takes to move to a new loan or lender. Consider other factors that can affect your home loan, and ensure that you’ll greatly benefit from the switch.

Do you have other ideas on home loan comparison and refinance? Share your tips in the comments section.

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5 Important Things that You Need to Know about Your Home Loan

Planning to buy a house anytime soon? It’s an exciting milestone for many Australians. It is also one of the major financial decisions you’ll make, that’s why it is important to understand what buying a house entails.

In most cases, people consider getting a home loan, and there are several factors to take into account should you take this route. For instance, it is essential to save money for the deposit. The bigger the deposit, the lower the amount of loan that you need, and the less interest that you’ll pay throughout the loan term.

Here are other important things that you need to know about home loans:

  1. Fixed loan vs. variable loan. There are two types of home loans. The fixed loan has a fixed interest rate for a certain period, while a variable loan comes with an interest rate that changes depending on market rates. In this case, your repayments will also vary.
  2. Compare home loans. Financial institutions offer a wide range of home loans to cater to people’s varying requirements. Look around and compare home loan rates from different institutions to make the selection process easier. A comparison rate is a good way to compare home loan interest rates.
  3. Check the fees. Aside from the interest rate, it is important to know the fees included in your home loan, whether upfront or ongoing fees, as these can easily increase your repayments. Also, esquire if there are charges for incidents such as late payments or cancelling your home loan.
  4. Know the amount of repayments. A home loan calculator is a useful tool to know how much you need to pay every month. Bear in mind, however, that it should serve only as a reference. There are several factors to consider when it comes to getting home loans, and a home loan calculator is designed to give mortgage estimates, not the actual amounts.
  5. Check the home loan key facts sheet. Financial institutions that offer home loans will have a home loan facts sheet available upon request. It will include important details such repayments, fees, interest rates, and other charges. It makes it easier to compare homes across different lenders.

As with any other important document, make sure to read and understand the terms and conditions before signing any contract for your home loan. Clarify terms with the financial institution to avoid having to deal with unpleasant surprises later on.

Got other ideas on home loan comparison and how to compare home loan rates? Share your insights in the comments section.

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How the Reserve Bank Cash Rate Impacts Home Loan Rates

When you look at home loans and compare mortgage rates, you may encounter the term “Reserve Bank cash rate” or simply “cash rate”. This refers to the market interest rate on overnight loans among financial institutions. It is monitored by the Reserve Bank of Australia which is the country’s central bank and has the ability to increase or lower the official cash rate. This is through basis points to manage economic inflation.

The Reserve Bank of Australia covers the country’s monetary policy and discusses how to manage it. The Governor will then release a statement which influences various aspects not only home loans but also bonds and stocks, deposits, and bank rates.

So how does the Reserve Bank cash rate affect home loan rates? Based on the set cash rate, banks will make adjustments to the fees and charges to their products. As the RBA raises or cuts the cash rate, banks will also change their interest rates for home loans. This strong influence can be seen particularly in variable rate home loans. In other words, the Reserve Bank cash rate plays a significant role on what the interest rates on home loans will be, as well as the amount of repayments you need to handle each month. That is why it is important to be aware of it when you compare mortgage rates.

Now that we’ve seen the impact of cash rate on home loans, bear in mind that financial institutions are not required to take on the changes in cash rate, but not following it will do more harm than good. For instance, they may get a bad reputation should they fail to consider a cut in cash rate which means lower interest rates for the customers.

Cash rate is a crucial component on how much interest rate banks will charge customers on their home loans. That is why it is very important to understand the rates your bank implements, so you will have an idea of how high your repayments will be per month. You can likewise do your own research. Many websites of banks offer a home loan calculator that can give you an estimate of your monthly repayments. But since you can only get estimates, it is still better to seek help from a financial expert so you will know how to compare mortgage rates and choose what meets your requirements.

Got other tips on how to compare home loans and mortgage rates? Share your ideas in the comments section.

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