There is a general view that fixed home loans offer more security than the variable home loans in Australia.
However, for the past 10 years the variable home loans in Australia have been lower than the rates set for a fixed duration.
Even 5 year fixed home loans have not been able to dramatically save money against variable rates' rises for the same period. Thus, the standard variable home loans in Australia are proven to be a good lending package. So what should I choose for my home loan?
The current financial market is still unclear after worldwide banking disasters of 2008 and 2009.
To boost economy, reserve banks of many nations decreased the interest rate.
This is a great news for home owners because the private lenders also decreased interest rate for mortgages.
However, the slowly improving economy will need to repay the financial debt. Thus, it is not surprising that Reserve Bank may (or will) increase the interest rates substantially. This means that variable home loans in Australia will increase too. Is this time to panic? Certainly not!
For the past 10 years the variable home loans in Australia performed better than the fixed rates. Even 20 years ago the variable rates had an upper hand against the fixed loans. It is true, that the fixed home loans are locked against future rises in interest rates. However, these fixed loans have:
The variable home loans in Australia often provide offset accounts with redraw facility. This means that you can repay the variable finance faster than the fixed type. A lot of lenders will also offer offset accounts for their fixed home loans. However, this will come with higher interest rate and the additional charges.
Currently, smaller lenders beat big banks on the best variable rates.
Beat Home Loans, Myrate, Once and Heritage offer loans under 6.7%.
Bigger boys like ING, ANZ, NAB and AMP are all under 6.8% mark. Westpac is falling behind at 6.82%. Now, you do need to check the fees and charges. The setup fee is not that detrimental over 20-30 years. However, the monthly charges are important. Thus, Westpac may currently insist on 6.82% interest but their variable rocket account does not carry monthly charges.
Also, there are numerous comparison calculators, which show variable and fixed rates for a given loan. In most cases 3 year variable loan does not go over 0.5% of the fixed type. However, the fixed loans do have higher charges and often no offset facility.
Any financial mortgage company is able to provide a variable home loan in Australia.
The smaller lending businesses offer better home loan rates than the more established institutions.
However, be aware that banks are more secured financially than the smaller lenders. Thus, you can expect a sudden jump in repayments if the less secured lender has economic difficulties. Often, it is not that easy to refinance your loan with the bank. Thus, you may be stuck with the smaller lending company if things go wrong.