There is a lot of talk about interest rates right now being that we have reached record lows in Australia! As a result, our clients who are wanting to take advantage of the current market opportunity by refinancing, investing, buying or building a property have been asking, “Should I go with a fixed rate or a variable rate in this market?”. The answer is, it depends on your unique position and your goals, a combined product could also work well for you.
What are the options?
Professional Package
A professional package home loan is a product that has a home loan, offset account (savings account) and an optional credit card under the one umbrella. This option comes with a discounted interest rate for the home loan, the offset account and credit card fees are waived. (This package usually attracts an annual fee of $0 to $395 depending on the lender).
When reviewing the professional package; the aim is to ensure your balance in the offset account allows you to save enough interest on the home loan resulting in more interest saved than the annual fee charged. You would choose this option if the combined package balances out to lower costs than other lower interest rate home loan products.
This product can be set up as either a variable or fixed rate home loan. Most lenders will not allow an offset facility whilst the home loan has a fixed interest rate however, there are some lenders that do. In this scenario you would compare the fixed interest rate offered with what could be saved by linking an offset account.
Variable Rate (Basic) Home Loan
A basic home loan is simply a low rate home loan that generally has either nil or low fees. This product allows you to pay the home loan off as fast as possible, it has a variable rate and a redraw facility. It is up to you to make additional repayments to reduce the interest costs and pay the home loan off sooner.
Fixed Rate Home Loan
A fixed interest rate home loan has a fixed interest rate from 1 to 5 years. There are certain rules within this product, the main items to consider are;
- Early repayment costs; if you want to pay back the loan during the fixed rate term, there could be early repayment fees. The fees are based on the time remaining on the fixed rate period, the loan amount and the actual fixed interest rate. The exit fees cannot be quoted until the day the payout figure is requested. With this in mind, know what your short-term goals are with your property.
- Limits on additional repayments; each lender has different rules regarding what additional repayments you can make during the fixed rate period. You must understand the lender rules and take this into consideration as well as the fact that any surplus funds in a fixed rate home loan may not be accessible as they are within a variable rate home loan.
- Rate lock fee; the fixed rate offered today may be subject to change. When reviewing a fixed interest rate, take into consideration what fee the lender may charge to guarantee the interest rate for a time period. The cost of the rate lock option varies between lenders.
Variable & Fixed Rate Combined Home Loan
If you would like to benefit from both a variable and a fixed rate home loan, a combined product could work well for you. When choosing this option, we recommend that you consider what additional repayment capacity that you have when reviewing the variable rate loan balance. If you have an amount of money coming to you in the future, ensure that you will be able to utilise that money without penalty.
There is a lot to take into a consideration when deciding on the right home loan product for you. Our expert brokers are here to help you on your journey and we recommend that you reach out for a chat to discuss your circumstance and guide you on your home loan journey with the most up to date market information and opportunities.
Launch Finance is based in Western Australia and services clients nationally. Our offices are located in Perth and Mandurah, contact us on (08) 9367 4222 or [email protected] and we will put you in touch with one of our expert brokers in your area. If you are a current Launch client, we recommend you call your broker directly on their mobile, the most up to date details for our team can be found here.