When you buy a house, you’re likely going to need a mortgage. Once you’ve found the home of your dreams, the next decision will be what kind of mortgage you want. Two of the most common types of mortgages are variable mortgages and fixed rate mortgages. Here’s what you need to know about both of them before you make a decision.
Fixed Rate Mortgages
Fixed rate mortgages are ones with a fixed interest rate. This means you know exactly what your repayments will be, as the interest rate won’t change until the term of the product comes to an end. Usually rates are fixed for 1, 3, or 5 years, but some can be fixed for as long as 10 years.
You know what your repayments will be each month for a defined period of time, so it’s easier to budget.
If interest rates go up, your mortgage repayments won’t.
If interest rates go down, your mortgage repayments won’t follow suit.
There may be an early exit fee if you decide to switch to a different product before the current one ends.
You may not be allowed to make extra repayments during the term of the fixed rate.
Rates can be higher than variable rate mortgages.
Variable rate mortgages are ones that do not have a fixed interest rate. Your lender sets their variable rate, often taking into account the RBA cash rate and what other lenders are doing with their interest rates. This means at any time during your mortgage term, your interest rate could change, and your mortgage repayment will change along with it.
You can usually make extra repayments to your mortgage, helping you pay it off quicker.
No exit fees if you want to switch to another product (depending on your loan terms and bank).
If interest rates are cut, your repayments will decrease too.
Rates can be lower than fixed rate mortgages.
If interest rates go up, your mortgage repayments will go up as well.
You may be unprepared for a rise in your mortgage repayments.
Which type of mortgage will suit you best will come down to several different factors. Speaking to a qualified mortgage advisor will help you work out whether a variable or fixed rate mortgage is right for you. Some people are happy to take the risk of their repayment changing at any time, and others simply aren’t. You may prefer to know that your repayments won’t change for a set period of time, if you may worry each month about the rate increasing.
Our trusted mortgage advisor in Joondalup will be able to help you find out not only which mortgage type is right for you, but also what you can realistically afford to pay.
Contact us online now or call our mortgage team on 08 9300 2553.