What Is The Difference Between A Fixed Rate and Variable Rate Mortgage?
The home loan application process can be overwhelming with the sheer amount of information you need to consume.
There are many different facets to home loans to understand and one of the keys to unlocking your home loan’s potential is figuring out how fixed rate mortgages and variable rate mortgages differ.
A fixed-rate mortgage offers the advantage of stability - as you ‘lock in’ your rate of interest for a set period of time, this allows you to create a consistent budget and could be a wise option for those who prefer their financial commitments to remain regular from month to month.
But committing to a fixed-rate mortgage means that if market movements cause the Reserve Bank of Australia to cut the cash rate, you will still pay the agreed amount of interest on your loan until the fixed-rate term ends.
In contrast, variable rate mortgages move with the market - traditionally these have fluctuated in line with the cash rate set by the Reserve Bank of Australia. While these offer less consistency than fixed-rate mortgages, many consumers find the ability to pay market rates appealing.
Whether you choose a fixed or variable rate mortgage, it’s a wise idea to check in with your mortgage broker on a regular basis to see whether your home loan is still meeting your needs. Your requirements - and market rates - can change over time, so it is smart to assess your situation regularly.
For more information on your situation, talk to a Loan Market mortgage broker today.