Know About Fixed Rate Home Loans And Split Rate Home Loans

Fixed rate home loans: Want peace of mind knowing what your loan repayment is going to be tomorrow? With a fixed rate home loan you have the security of knowing that your repayment will be the same for a fixed period of time. A fixed rate loan allows you to accurately budget each month.

Because the repayments are fixed, it remains the same for the duration of the fixed rate period, usually between one and five years. At the end of the fixed period, you have the choice of switching to the standard variable rate or a combination of split loans.

When is it a good idea to fix the interest rate on a home loan?

Because economic conditions are beyond your control, even the best economists can't predict with absolute certainty when interest rates will rise or fall. For this reason, many borrowers opt to fix their loan for a period of less than 3 years.

When considering a fixed rate home loan it is best to do some research on the current economic news and trends to get an idea of where rates could be heading. As a rule of thumb, you would want to fix when rates are at the bottom or near the bottom of an interest rate cycle.

Consider the following pros and cons before you decide on a fixed rate home loan:

Pros of a fixed rate home loan

* Same regular repayments each month
* Stability fixed repayments allow you to plan your finances and stick to your budget, even in times of economic uncertainty
* Cost The rising of interest rates would not change your monthly repayment

Cons of a fixed rate home loan

* If interest rates fall you may pay more for your loan than borrowers on variable rates
* Most lending institutions cap the amount of extra repayments you can have each year
* You may be penalized if you pay off your home loan before the fixed rate expiry date
* Fixed loans generally have limited features e.g. no redraw facility

Split rate home loans: Want added security of a fixed rate home loan but also the flexibility of a variable rate home loan? With a split rate home loan you can have exactly that.

What makes a split rate home loan attractive for first time and existing borrowers is the ability to customize the home loan and add as many features as required. A split rate home loan can be split in many combination, e.g. 50/50 split or 80% variable and 20% fixed provided it meets lenders policy

Consider the following pros and cons before you decide on a split rate home loan:

Pros of a split rate home loan

* Fixing portion of your loan can protect you against future interest rate rises
* Leaving part of your loan at a variable interest rate allows you to benefit with a lower rate if interest rate falls
* Have a fully featured home loan by combining multiple splits together

Cons of a split rate home loan

* Different costs might apply to different portions of the loan e.g. fixed rate loans have a high break up cost
* Limited amount of extra repayments might apply to the fixed portion of the loan
* Flexibility to move to another lender might be costly due to the fixed component

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