Fixed versus variable home loans: The basic differences

By the resi financial blog team, 05 September 2013

What is the difference between a fixed and variable home loan

If you're a first home buyer and looking for the best home loan, you may be in for a shock. Unfortunately, there is no one home loan option that will fit the criteria for each and every individual looking into purchasing their first property.

However, there are a number of different loan types available, and each one has its own pros and cons. Seeking professional advice and finding the right one for you is one of the most important aspects of approaching the real estate market.

Finding the right home loan type will set the trend for your repayments. While it is possible to change and alter your home loan during its life cycle, it can be an expensive, cumbersome endeavour.

Two of the most popular mortgage models that many first home buyers research are the fixed rate or the variable rate loan.

The main difference between the two loan types is how the interest rate affects the repayment. A fixed rate home loan has a set interest rate charged for a certain period of time, usually between three and five years.

During this time, regardless of market activity, the interest being paid on the loan will remain at a constant rate. This offers a degree of security and is often the best choice for a first home loan.

On the flip side, a variable rate home loan has an unsecured interest rate that is at the mercy of the economy and market.

This can mean some extremely low interest rates as the cash rate changes. However, if the market fails, the interest rate on the repayments can escalate as well.

Overall, the type of mortgage you choose for your first home loan will come down to a number of personal factors. Weighing up your options and choosing the right loan for your lifestyle is imperative to a pleasant, seamless home-purchasing experience.

Categories: Home Loans