It\u2019s the question every Aussie with a mortgage<\/a> has to grapple with \u2013 should you choose a fixed, variable or split home loan?<\/strong><\/p>\n Finance specialist, John Tindall from Accumulus Home Loans<\/a> in Sydney, translates the mortgage jargon, explains the pros and cons of the different types of loans and shares his thoughts about which approach is best.<\/p>\n Tindall says a fixed rate loan provides a \u201cpredictable interest bill\u201d \u2013 and this is its appeal for many.<\/p>\n \u201cIf, for example, you have a home loan with a 4% interest rate, fixed for two years on a $500,000 loan, then the monthly payments will about $2390 a month. You\u2019ll pay less in February because it has 28 days of interest and a bit more in months with 31 days,\u201d he says.<\/p>\n \u201cAlthough most lenders<\/a> allow some degree of additional repayments, your fixed rate loan is a bit like a big ice cube, which reduces at a steady predictable pace,\u201d Tindall adds. \u201cAnd that means you can budget for it.\u201d<\/p>\n There are pros and cons for different types of loans. Picture: Getty<\/p>\n<\/div>\n \u201cA variable rate is more fluid,\u201d Tindall says. \u201cThe interest rate can rise or fall depending on the lender\u2019s cost of funds<\/a>, which might include things like domestic deposits or the international money markets,\u201d he says.<\/p>\n \u201cIf the interest rate on the same $500,000 loan rises or falls by 0.1%, your repayments are going to rise or fall by $30 a month. That\u2019s been great for the last 29 years \u2013 as interest rates have been mostly declining since early 1989 \u2013 but can have a nasty bite when they\u2019re going up,\u201d Tindall says.<\/p>\n The advantage of a variable rate loan is its flexibility, he says. \u201cYou can pay off as much as you want; that might be from tax refunds, windfalls or regular extra payments. And variable loans may also have an attached offset account.<\/p>\n \u201cThese two features mean you should pay less interest over the life of the loan,\u201d Tindall says.<\/p>\n \u201cVariable rate loans are more like a jug of water; the interest repayments can change without much notice, you can reduce it faster with more repayments and an offset or you can top it up again, through a redraw.\u201d<\/p>\n To sum up, a fixed home loan is a rate of interest charged on the loan amount which doesn\u2019t change for the duration of the fixed term, commonly between one to five years, where as a\u00a0variable home loan is a rate of interest that can rise or fall.\u00a0<\/span><\/p>\n Tindall says most people end up with a variable rate loan, simply because they haven\u2019t changed it for years or thought interest rates would drop over time.<\/p>\n \u201cWell, they\u2019ve been mostly right for most of the last 30 years. But it depends on what you as a borrower need to make your loan work best for you,\u201d he says.<\/p>\n But wait, there\u2019s more.\u00a0A split loan is made up of more than one type of loan. \u201cThis allows even more flexibility in designing the loan for your particular needs,\u201d Tindall says.<\/p>\n \u201cFor example, first home buyers and investors might have mostly fixed rates to get used to having a regular, budget-able loan repayments. People who want to smash down a loan would prefer variable rate loans.<\/p>\n \u201cIn my opinion, it\u2019s mainly a considered choice between predictability and flexibility,\u201d he says.<\/p>\n A split loan allows for more flexibility. Picture: Getty<\/p>\n<\/div>\n Personal circumstances and preferences dictate which option is best, Tindall says.<\/p>\n \u201cIf you\u2019re concerned about the impact on your family budget, then consider a fixed rate loan. If you want to smash your loan down, consider a variable rate. If you want a bit of both, then split! And if you\u2019re confused, ask a lender or a mortgage broker,\u201d he says.<\/p>\n Realestate.com.au\u2019s new technology helps you choose a home loan<\/strong><\/em><\/p>\n
\n <\/p><\/div>\n Realestate au <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"The lowdown on fixed<\/h2>\n
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<\/p>\nThe flexibility of variable<\/h2>\n
What\u2019s the major difference between a fixed and variable loan?<\/span><\/h2>\n
Split the difference<\/h2>\n
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<\/p>\nSo, what\u2019s best?<\/h2>\n