Interest Rates - What You Need to Know
Whether you are a home loan veteran or a newcomer to the wonderful world of mortgages, chances are you will be aware of the importance of interest rates.
The question is, just how important are they? Are they the be-all and end-all of property financing decisions? Will people talk about you behind your back if you don't get a good one?
In order to answer these questions, let's start by examining what your main options are when it comes to interest rates.
Variable interest rates
Let's say you signed up for a variable rate home loan. That would mean that your mortgage repayments will be affected by any fluctuations in your lender's interest rate, which are in turn usually affected by changes to the official cash rate.
The good news is that when interest rates go down, so do your home loan repayments. The bad news is that the opposite is also true.
However, the main thing about variable rates is that they allow you a certain amount of flexibility, for instance to increase your repayments in order to save on interest over the full term of your loan.
Fixed interest rates
The opposite of a variable rate is a fixed one. These allow you to lock in the interest rate of your home loan for a set period of time.
While this means that you may miss out on favourable fluctuations in the official cash rate, it also protects you from less than favourable ones.
A fixed rate can provide you with certainty about the level of your home loan repayment obligations which can be a real advantage, especially when adjusting to life with a home loan and the budgeting necessary to make it all work.
It is actually possible to get the flexibility of a variable rate and the certainty of a fixed rate - without buying two houses to do so!
Combination or split home loans allow you to split your loan amount into multiple portions so you can then specify different interest rates and other loan features for each.
So which is right for me?
The best way to ensure that you end up with the right interest rate for you is to discuss your situation with a home loans expert.
A mortgage broker can help you to identify your priorities and map out what scenario will be best for you in terms of your interest rate, and also the myriad other home loan features you can choose.
Even if you have already been paying back your home loan for a few years, it may be possible to refinance and find a more competitive interest rate - talk to a mortgage broker about your options.