3 Oct 2011
Interest rates have remained on hold since November of last year, and while there have been a few predictions that interest rates could go down sometime soon, most economic experts seem to think it’s inevitable that interest rates will go up again in the near future.
The uncertainty surrounding the direction of interest rates begs the question – is it a good idea to choose a fixed rate or a variable rate home loan?
Over the years interest rates have gone as high as 17% and down as low as 3%. Obviously you would want to fix in a home loan rate when interest rates are near the bottom of the scale, but whenever you decide to fix in a home loan rate, you are always taking a bit of a gamble that interest rates won’t go any lower.
Having a fixed home loan does offer security though, and it can be very good for lenders out there who want to carefully budget there repayments and know exactly what they will be spending from month to month.
Traditionally fixed home loans have garnered a bad reputation due to lack of flexibility, but there are some good deals out there that offer features such as extra repayments and redraw facilities.
However there are fixed home loans out there that charge you for making extra repayments and this makes it more difficult to get ahead on your home loan if you want to.
If you want greater flexibility with your home loan then a variable interest loan is often the better choice as they generally come with a lot more features than fixed home loans.
With variable home loans there is the risk of interest rates going up though, but if you can get ahead on your repayments as much as possible, this will help cut down the interest on your loan sooner and hence will make rate hikes less of an issue.
Whether a fixed or a variable home loan option is best for you will depend on your priorities and your individual financial situation. Ask yourself whether or not you prefer flexibility or security and definitely talk to mortgage brokers and lenders to try and get an idea of the types of home loan options that are available to you.