Fixed Interest Vs Variable Home Loans


Mortgage Saving Tips

Sometimes it seems like a very hard call on when you should fix your interest rate and when you should leave it as a variable interest rate. Banks have always priced in the future direction of interest rates into fixed rate mortgages so in this situation you should not worry so much about timing but more about your own financial situation. If you want the security of knowing how much interest you are paying each month then choose a fixed mortgage for an appropriate length of time (ie: 1, 2, 3 or 5 years). Just be aware that fixed mortgages have the drawback of less facilities such as making extra repayments, offset accounts, redraw facilities and if you sell the property or want to get out of the loan then you may have to pay significant break costs. In some situations a better alternative to fixed rate mortgages is to fix a proportion of the loan, say 50%, and keep the other amount as a variable home loan. The advantage of doing this is that you can still have the extra facilities that can save you money like a 100% offset account, but you can also have the security that if interest rates do go up then only a proportion of your monthly mortgage repayments will increase.

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