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What is a fixed rate home loan?

On May 15 2013
Tagged as:
  • Residential Property


First time buyers will experience a steep learning curve when they first start looking at the ...

First time buyers will experience a steep learning curve when they first start looking at the property market.

A big part of making that purchase decision is the type of loan, or mortgage, they sign up to.

A fixed rate home loan is a popular choice when buying a house.

Signing on to this kind of loan means that the interest rate will be 'locked-in' for the initial period of a loan, usually anywhere from the first year to five years.

Benefits

The benefits of this kind of loan mean that for those first few years, you will know exactly how much to budget for mortgage repayments. The amount will not change, even when the official cash rate (which dictates most banks' variable home loan rates) rises, you will be protected from those costs being passed on to you.

Downfalls

On the contrary, one of the downfalls of this kind of loan means that if the official cash rate to drop, you would not benefit from an interest rate decrease as you would with a variable home loan.

Another of the downfalls is that banks will often only accept a certain level of repayment ahead of schedule.

Any mortgage decision must be made carefully, so talk to the experts first.



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