Once you’ve decided to take out a mortgage to purchase that Donnybrook land for sale, one of the many things that you will have to decide on is what kind of home loan you should choose. One of your options is the variable rate home loan. A variable interest rate is basically an interest rate that goes up or down instead of staying fixed or the same. This means that if you choose variable interest rate mortgage, your minimum repayments each month will differ over the term of your mortgage.
Why Choose a Variable Rate Mortgage?
There are various reasons why variable rate home loans are very popular with lots of borrowers. For one, the variable rate is usually fair, considering the current conditions of interest rates and will go down or up with them. Other reasons include the following:
- You may be able to make additional repayments so that you can repay your mortgage ahead of the loan term.
- Variable rate mortgages usually offer borrowers extra features like redraw facilities and offset accounts that enable you to repay your mortgage much faster.
- The market for variable rate home loans is very competitive so finding a good deal is fairly easy.
- If applicable, you can switch mortgages and refinance without having to pay a penalty in the event that you get a more favourable deal.
The main downside of variable rate home loans, however, is that you may find forecasting or budgeting repayments. Likewise, in the event that interest rates go up and you don’t have enough savings, you may find it hard to keep up with repayments.
If Not a Variable Rate Home Loan, Then What?
Aside from a variable rate mortgage, there’s also the fixed-rate mortgage and the split rate loan. With a fixed interest mortgage, the interest rate will be fixed for one to five years, so you know how much you are paying every month. With a split rate mortgage, you can opt to ‘fix’ a part of your mortgage in order that you have some certainty regarding your monthly repayments. Meanwhile, the remaining part of your mortgage will have a variable interest rate, which means that you can enjoy the benefits (mentioned above) of having a variable interest rate. Put simply, choosing a split rate loan will give you the benefits of both home loan types.
Should You Go With a Variable Rate Mortgage?
Whether you opt for a variable rate home loan, fixed-rate home loan, or split rate mortgage must be a decision you based on crucial factors such as the following:
- Can you comfortably afford sudden the rise in interest rate, should it occur? Meaning that you can cope with higher interest rates without sacrificing all your other monthly expenses?
- Are you planning on repaying your mortgage as early as you can?
- Are looking to utilise the additional features offered with variable-rate mortgages?
- Are you planning on refinancing in the future?
Put simply, deciding on what specific kind of home loan to take out should come down to your own preferences and circumstances.
