When interest rates are low, most homeowners and homebuyers try to lock in a fixed loan at low rates for as long as possible. But did you know that sometimes, a variable home loan is better than a fixed rate home loan, even in times of low interest rates? At Smartline Rockingham, we have a lot of experience with both types of loan.
Here are four crucial factors in helping you choose a variable home loan.
Competitive Fees and Rates
Variable rate home loans tend to offer rates and fees that are very competitive. While low, fixed interest rates are great, they aren’t the only factor in a home loan. It is important to know everything about your loan so you can make the right decision based on your needs.
We encourage, at the very least, having a “fact sheet” for any loan. This tells you the interest rate and fees on a loan. The biggest advantage: you know exactly how much each dollar is going to cost you in repayments. The interest rate is important, but fees are equally as important. The interest rate only tells half of the story. Your home loan is a story in which it pays to know the ending ahead of time.
Choose Your Own Schedule for Repayments
If you want to pay your loan off faster, a fortnightly repayment schedule works better than a monthly schedule, partially because there are 52 weeks in a year but only 12 months. That means you make the equivalent of 13 monthly payments when you pay every fortnight.
According to an example in realestate.com.au, if you have a 6% principal and interest loan over 30 years for $350,000, you can save $86,842 and 5 ½ years by paying fortnightly. This simple “work-around” saves you more money than any other factor. A variable rate loan often allows the flexibility in terms which allows you to make fortnightly payments at no extra charge.
Extra Payments With Redraw
Flexibility is the main benefit in choosing a variable rate home loan. Many variable rate loans allow you to make extra payments, thus lowering your interest rate, but also allow you to redraw the extra money you paid if you have a financial emergency. Even an extra $100 per month can chop a lot of time and interest off of your loan while giving you a financial “buffer” in case things don’t always go as you plan.
Offset Account
An offset account is similar to extra payments with redraw in results, but it works a bit differently. An offset account is an account that is linked to your loan. Always try to get a 100% offset account, so you will be paid the same interest on your account as you are paying on your loan. That makes the numbers similar to extra payments with redraw.
The main difference is that the offset account works exactly like a standard bank account. You can use an ATM card to allow instant access to your money when you need it. Meanwhile, the interest on your money is coming off of your loan, making more of your repayments go towards the principal.
Talk to a Home Loan Broker at Smartline Rockingham
There are a lot of factors when it comes to choosing the right home loan from the right lender. At Smartline Rockingham, we have access to 28 lenders who offer over 300 combined credit products. We know which lenders offer which terms and who is most likely to look upon your individual credit situation the most favourably.
Banks are now offering “personal relationship managers” to help you with paperwork, simplify your loan process and give you the right loan. That’s great, but what if one of the other 28 lenders has something available that is better for you than what your bank can offer?
Your Mortgage Broker is Your Best Friend for Home Loans
Call a mortgage broker at Smartline Rockingham. We will use all of our resources to find the right home loan for your situation. Your home is most likely the largest investment you will make in your life. Don’t leave it to chance. Call (08) 9527 1800 today.
