Some helpful Pros and Cons when it comes to the decision of whether to fix your home loan or choose a variable option before we even visit other strategies like split loans and more:
Fixed
Pros
+ You can budget based on the fixed interest rate you are guaranteed to pay over the fixed loan period knowing this won’t change at all, providing certainty in repayments.
+ A fixed home loan also guarantees that your home loan rate will not go up, causing an inflation in interest you will pay.
Cons
+The break costs or refinance penalties charged, should your circumstances change and you sell your house or decide to refinance later on, are a high cost if you choose a fixed rate option.
+ You are limited on making additional loan repayments; and come tax time or when yearly bonuses are paid, having a fixed loan limits you paying down your home loan with most Lenders.
+ Once the fixed term expires you will move straight onto a variable rate, whatever this is at the time and this could be a substantial difference to what you were used to paying on your previous fixed rate arrangement.
+ If home loans reduce then you will not see the benefits of this as you are locked into a fixed rate arrangement.
Variable:
Pros
+ The obvious one is that you have the ability, in a market that allows, to pay a reduced interest rate as the interest rate might go down.
+ You have the flexibility, in most cases, to switch to a better deal avoiding minimal to no break costs or early release penalties.
+ You likely have access to an option of having a redraw/offset facility attached to your mortgage, allowing you to pay off your home loan sooner.
+ You are likely to have the flexibility to make additional payments to your home loan, enabling you to pay this off sooner and the ability to switch this loan to a fixed rate at any stage.
Cons
+ As per the above, this also means the opposite, if home loan rates go up, you will pay more interest on your home loan as you have chosen a variable option.
“Mortgage strategies are not a one size fits all approach as to whether each option is right or wrong, it comes down to each individual’s financial situation and property wealth goals, and this can always be revisited, tweaked and optimised as life changes down the track…” Ewan Ramsey also stated.
When entering the property market, especially in the current market, having a solid finance pre-approval in place with a Lender that delivers on the timeframes set out in the property contract clause is a must and by consulting with a Mortgage Professional, this allows you the gain professional advice and have support with managing the finance clause in your contract.
