In Australia, there are a number of ways to structure your home loan repayments. Finding
the best option may save you time and money on your mortgage. Here is some information
to help you choose the repayment structure that works best for you
Variable rate loans
Variable interest rate loans are all about flexibility. Essentially, with a variable rate loan, the
interest rate moves up or down as the market moves. This means your loan repayments may
also change month-to-month.
If the interest rate drops, then your repayments may drop as well. However, in the event of
an interest rate rise, your repayments could also increase.
Many variable rate loans come with additional features, which can reduce the amount of
interest paid over the life of the loan. For example, a variable rate loan with a 100% offset
arrangement links your loan account to your savings account. Any funds held in your
savings account are offset against the borrowed amount, reducing the interest you have to
Many variable rate loans offer flexibility in terms of increased payments, allowing you to pay
off your loan faster if you have additional funds available.
Fixed rate loans
A fixed rate loan is one where the interest rate is fixed for a limited period, and immune
from any movements in the market. The most popular choices are three and five-year fixed
interest loans, although options ranging from one to ten years are available.
Fixed rate loans allow you to make steady, regular repayments. They’re great for borrowers
on strict budgets, or if you’re entering into a mortgage at a time when interest rates are
likely to rise.
In the event of a drop in interest rates, being locked into a fixed rate may mean your
repayments are higher than they otherwise would be. It’s also worth noting that breaking a
fixed rate loan can potentially cost thousands of dollars in fees.
Additionally, many banks will charge you a fee for making extra payments towards the loan
during the period it has been fixed.
Split rate loans – a foot in each camp
A split rate loan is when you break your mortgage into two loans – one with a fixed rate and
one with a variable rate.
It’s something of an ‘each-way bet’. A split loan offers borrowers protection from rate rises
(with the fixed portion of the loan) alongside the advantage of rate drops (with the variable
portion of the loan).
Most banks will allow you to split your loans from the outset, without having to pay for two
separate loan applications.
Choosing the right kind of loan depends on your personal situation, earning capacity and
long-term goals for your property. Speaking with a mortgage broker can help you to figure
out the best way forward, and could help you save money along the way.
Please feel free to contact us for any further information.
Darren-0487 800 900
Jeff-0439 888 911
Office-03 9497 4917