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Which Home Loan is right for me – Fixed Rate or Variable Rate?

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Which Home Loan is right for me – Fixed Rate or Variable Rate?

When you're hunting for the right home loan, one of the first decisions you'll need to make is which interest rate option is best for you – variable or fixed.

It's worth taking your time to compare home loans. As a starting point, consider whether you prefer the certainty of a fixed rate home loan or the flexibility of a variable rate home loan.

From there, look at the kinds of features you want to take advantage of. Are you looking for a loan that offers a 100% Multi-Account Offset account or free redraw facility? Or would you prefer a no-frills home loan with a low rate?

Fixed Interest Rate Home Loan

With a fixed rate home loan, you know exactly how much your mortgage repayments will be for a set amount of time. This gives you certainty and makes the job of budgeting a little easier.

Pros: Fixed rate home loans also offer security against interest rate rises, so even if the Reserve Bank of Australia's (RBA's) official cash rate rises, your interest rate stays the same – and that means your repayments will stay the same too.

Cons: If interest rates fall, you'll miss out on the savings. Also, fixed rate loans tend not to offer the same features as variable rate home loans, but each home loan is different – so compare, compare, compare!

Variable interest rate

Variable rate home loans can offer more flexibility than fixed – but it's important to keep in mind that they leave you open to changes in interest rates, both up and down.

Pros: Variable rates tend to follow the RBA's official cash rate – so if the official cash rate falls then it's likely your variable rate will fall too, meaning your home loan repayments will also decrease.

Cons: If the official cash rate rises, your home loan repayments are going to increase as well.

Features to look out for:

Mortgage Offset Account

Some banking providers offer an offset account, allowing you to link your transaction account to your home loan.

The credit balance of your transaction account is offset daily against your loan balance, reducing the mortgage interest charged – which can help you to pay off your loan faster.

So let's say you have a $200,000 loan and $15,000 in your offset account – you'll only be charged interest against $185,000. The more money in your transaction account, the better.

Redraw facility

Similar to an offset account, a redraw facility allows you to make extra payments to your home loan, but you'll be able to take back (or redraw) that extra money if you need it.

Additional repayments

Free additional repayments, as the name suggests, allows you to make extra repayments without penalty, so you can save in interest and pay off your home loan sooner.

Need help choosing a home loan?

We know there's a lot to consider when choosing a home loan, so it may be beneficial to speak to a CUA Home Loan Specialist to help you decide what's right for you.

To talk with one of our home loan specialists, call 133 282 or enquire online.

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With a fixed rate home loan, you know exactly how much your mortgage repayments will be for a set amount of time. This gives you certainty and makes the job of budgeting a little easier.

Pros: Fixed rate home loans also offer security against interest rate rises, so even if the Reserve Bank of Australia's (RBA's) official cash rate rises, your interest rate stays the same – and that means your repayments will stay the same too.

Cons: If interest rates fall, you'll miss out on the savings. Also, fixed rate loans tend not to offer the same features as variable rate home loans, but each home loan is different – so compare, compare, compare!

Variable rate home loans can offer more flexibility than fixed – but it's important to keep in mind that they leave you open to changes in interest rates, both up and down.

Pros: Variable rates tend to follow the RBA's official cash rate – so if the official cash rate falls then it's likely your variable rate will fall too, meaning your home loan repayments will also decrease.

Cons: If the official cash rate rises, your home loan repayments are going to increase as well.

Mortgage Offset Account

Some banking providers offer an offset account, allowing you to link your transaction account to your home loan.

The credit balance of your transaction account is offset daily against your loan balance, reducing the mortgage interest charged – which can help you to pay off your loan faster.

So let's say you have a $200,000 loan and $15,000 in your offset account – you'll only be charged interest against $185,000. The more money in your transaction account, the better.

Redraw facility

Similar to an offset account, a redraw facility allows you to make extra payments to your home loan, but you'll be able to take back (or redraw) that extra money if you need it.

Additional repayments

Free additional repayments, as the name suggests, allows you to make extra repayments without penalty, so you can save in interest and pay off your home loan sooner.

Need help choosing a home loan?

We know there's a lot to consider when choosing a home loan, so it may be beneficial to speak to a CUA Home Loan Specialist to help you decide what's right for you.

To talk with one of our home loan specialists, call 133 282 or enquire online.