Is a fixed or a variable rate home loan best for you? I’ve partnered with Newcastle Permanent to help you answer this question in this sponsored post. Newcastle Permanent provides mortgages with interest rates that are lower than the competition.
With interest rates lower than they have been in many years, fixing your home loan is very seductive. The problem is that fixing the interest rate of your home loan, might not be the best course of action for you – it all depends on your financial circumstances.
With only around 20% of all home loans fixed, even with current interest rates really low, clearly there are some very good reasons not to fix your home loan.
Generally, there are three reasons why fixing your home loan is the best solution to your financial situation. First, if you fix when interest rates are at an all-time low, then you lock that low rate in for the term of the fixed loan. This can be for 1, 2 or 3 years, with some being fixed for 5 years.
Second, if interest rates rise, which they will, your repayments don’t increase. This is one of the most common reasons why people fix their home loans, because they don’t want to suffer the consequences of rising interest rates.
Most of us remember the problems in the late 80’s when interest rates rose rapidly to double figures, leaving many families unable to make their repayments and losing their homes. Third, if you are on a low income, then knowing that your monthly repayments won’t change over the life of the fixed term, helps people to budget and ease through the bad times.
If you want to pay your home loan off quickly then you need a variable rate. That’s because you can’t make additional monthly payments on a fixed interest loan (you can on a variable interest rate) and even though you can make annual top-up payments, their dollar value is severely limited.
You can usually add an off-set account to the home loan, which can help to pay off your home loan quicker. Also, a redraw facility is very handy, allowing you to take advantage of the extra payments you have made for any emergencies that might arise or to build a new extension on your home.
Variable rates are generally lower than fixed rates (when you first take on the loan), and you might also be able to lock in an additional 12 month ‘honeymoon’ rate, which will be much lower than either the fixed or regular variable rates.
So if you want to pay off your mortgage earlier or think that rates will stay low for a while yet, then a variable interest rate might be best for you. On the other hand, if you are on a limited budget you fight feel more secure with a fixed interest rate home loan.
Newcastle Permanent provides mortgages with fixed interest rates that are lower than their competitors – check them out before the next rate rise.
If you need deeper work around healing your relationship with money or overcoming your blocks and fears, maybe it’s time for some money therapy.