subject: Mortgages: Fixed Rate Versus Variable Rate [print this page] When buying a new home, deciding between fixed rate mortgages and variable rate mortgages can be a tough call. As important as the decision is, though, it demands a lot of thought and consideration.
Fixed Rate Mortgages -
As most mortgage brokers Brisbane will attest, fixed rate mortgages are generally the most appealing option to the broadest array of prospective homeowners. The biggest reason for this, of course, is the fact that they come with an easy-to-budget, unchanging monthly mortgage payment. Since the interest rate on such a loan doesn't fluctuate, homeowners can plan ahead with more accuracy. Also, should rates increase a fixed rate mortgage will protect you. On the other hand, if rates dip you will be stuck paying in at a higher rate. Often, fixed rates only apply for a certain period of time; talk to your broker to discuss the merits of these loans.
Variable Rate Mortgages -
Market forces and the Reserve Bank of Australia each month determine the interest rate for variable mortgages. Therefore, the rate can fluctuate dramatically and in ways that are both positive and negative in terms of your monthly mortgage payment. Some people prefer variable rate mortgages because they are more flexible when it comes to making additional repayments. On the other hand, if rates rise a lot many people find themselves in dire straits in terms of affording their monthly payment. Of course, if rates fall then you enjoy lower payments.
Discuss Your Options -
Many different things will determine whether or not you're best suited for a variable rate mortgage or for a fixed rate mortgage. People with a lot of "wiggle room" financially - i.e., those who don't need to adhere to an extremely strict budget - often do much better with variable rate loans. Those who absolutely must know what to expect in terms of a monthly mortgage payment are best advised to stick with fixed rate mortgages. Ultimately, the decision will be entirely up to you. For best results, discuss the pros and cons of both loans with your mortgage broker, who will look at your overall financial picture and advise you on the best course of action.
by: Eva Judge
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