In the excitement of buying a home some of the key finance options are often overlooked as home buyers scramble to find the perfect property. It’s often only when people are sitting down in front of their finance professional or bank representative that any thought is given to the features of the loan.
It’s understandable that getting the home loan is the primary focus of any finance discussions, but according to Hewcorp Finance principal broker Owen Kirk it’s also important to ensure the loan product is going to meet the needs of the borrower now and for a reasonable period into the future. One of these key considerations is around fixed and variable rate home loans.
Variable rate home loans:
The interest rate for variable rate loans is not fixed and will move up or down according to market forces, lender rate policies and the monthly interest rate decision from the Reserve Bank of Australia amongst other considerations. Whilst the home loan interest rates are not ‘tied’ to the Reserve Bank rate, it has been the norm over many years for them to move in line with the RBA rate. However, in recent years the variable home loans rates have started to move independently of the RBA rate due to the aforementioned market forces, cost of funds and lender policies. So, when assessing the relative affordability of a particular home loan product you need to consider not only the interest rate, but your ability to absorb upward rate movements on top of the usual establishment and ongoing fees.
Fixed rate home loans:
As the name suggests, the interest rate in these products is fixed for a defined term. In Australia, fixed rate home loans are commonly fixed for 1 up to 5 years although some lenders offer longer fixed terms. Having a fixed rate home loan gives a borrower some degree of certainty around their repayments during the fixed period. It helps with planning and budgeting. Borrowers still need to plan for the end of the fixed term where the rate could change substantially if the variable rate at the time is significantly higher than the fixed rate the borrower was previously locked into. In addition, many fixed rate loans are less flexible in terms of loan features such as offset accounts, extra payments and redraw facilities. It is important to explore all these options, features and potential pitfalls with your finance professional before committing to a loan product.
This blog is intended to give you a broad introduction of the many things you need to consider when deciding on home loan products, and isn’t intended to cover all scenarios. We recommend that you discuss your personal circumstances with your finance professional including Hewcorp Finance to help you make the right decision.
Hewcorp Finance provides professional home, motor vehicle, truck, caravan, marine and asset finance services to customers in Redland Bay, Bayside suburbs, and the greater Brisbane region. You can follow Owen at https://www.linkedin.com/in/owensjkirk or view information about home loans at http://www.hewcorpfinance.com.au/home-loans.html and LIKE us on Facebook @ https://www.facebook.com/hewcorpfinance/
This publication covers legal and finance issues in a general way. It is intended for information purposes only and should not be regarded as legal or financial advice. Hewcorp Finance recommends that professional legal advice should be obtained before taking any action on the basis of the general information presented in this publication.
Written and Published by www.presentprofessionally.com.au
Peace of mind and the right finance solutions to Redland Bay and Bayside Brisbane since 2005.