When it comes to choosing which kind of home loan you want many consider and wonder which would be better, a fixed rate home loan or a variable rate home loan. You should always think about which one best fits your financial situation and which one would be the best for you. If you plan on going for a fixed rate home loan, then a good way to start is figuring out what exactly the loan is and how does it work.
Fixed Rate Home Loan
When you apply for a fixed home loan, you will be paying for a fixed sum when repaying the loan along with its interest. This will stay the same between the period of the agreed time which is usually around 12 to 60 months or 1 to 5 years. During this time the amount agreed upon will be the only one you are paying and when the term is over and there is still an amount to pay, you will be able to either change to a variable rate or continue on with making another term agreement to continue and add another term for a fixed rate.
The fixed rate may initially be higher when it comes to interest but you have the comfort of knowing that the prices will not change until the term is up. Due to official cash rates going down in the past, this has made a lot of people consider going for a fixed rate home loan instead of the variable rate home loan. It all depends on the amount you can agree to and if you are up for the amount of interest and in some situations this may provide more useful and assuring if you have done the previous calculations.
The main advantage of the fixed rate home loan is that the borrower will be protected from any form of increase in mortgage payments if the interest rates were supposed to increase. This allows you to keep the agreed price and prevents you from having to adjust to other prices. Whatever price was discussed and agreed upon will be followed until the end of the term and you can rest assured that as long as you have the agreed amount every time you are supposed to repay; things will be just fine.
There are some disadvantages when it comes to fixed rate home loan which could be the initial and total amount of interest that you will be paying. When it comes to qualifying, you will need certain criteria and documents to all ow you to proceed with this home loan which may require certain proof that you can handle the costs and meet the requirements for the application itself. Aside from the interest rate that may be higher, you will also need to proceed to pay with the same price and this means if interest rates were to decrease, you would still be stuck paying the same agreed amount, until the term is over and a new agreement is made.
If you have the right amount of prepared and finances, you hold are credible then you can definitely go for the fixed home rate loan. Understanding that the price that is set and approved will allow you to just ready the amount you need instead of always checking what the price will be or what changes there are. Whatever price was agreed upon and that will be it as it will continue to as is until the term is over.
Discussing the options with your mortgage broker about the timing and what would be the best options is advisable but if you are sure that you can meet the requirements and can handle the price then things should be fine and safer on your side.
Basically the trade-off for a stable amount of payment during a term would be the slightly higher interest rate as well as not having the option to change the price until the term is over or for some other special reasons. If you however prefer the fixed price and don’t want any changing prices for the duration of the term, then the fixed rate loan is a good way to go.