Advantages and Disadvantages of Different Home Loan Types
Tuesday October 21, 2008
Home loan types can have a massive difference on how easy your home loan is to repay, so you should know the advantages and disadvantages of the two most common home loan types. Choosing between a fixed rate home loan and a variable rate home loan can make a massive difference to the amount of interest you repay, and the differences cannot always be factored in to calculations you make with home loan calculators.
Variable rate home loan
A variable rate home loan has the advantage of home loan rates that can potentially get lower quite quickly and will also often allow for unlimited extra repayments. The downside is the possibility of home loan rates rising and thus an increase in minimum monthly repayments. As interest rates are looking to keep falling at the moment, the downsides of a variable rate home loan are quite unlikely to be an issue for most borrowers in the near future.
Fixed rate home loan
A fixed rate home loan has the advantage of stability while the rate remains fixed - you will not need to worry about rising interest rates or rising minimum repayments. Unfortunately, as the official interest rate is looking to continue to fall, a fixed rate home loan will not move down with those interest rate cuts. Additionally, even if the fixed rate remains lower than the variable rate, you will generally be limited in extra repayments you can make on a fixed rate home loan. If this is restricted at the start of your home loan, you may find yourself paying quite a bit in interest that you may have avoided by making extra repayments.
Please visit our comparison page to compare home loans and mortgages and browse our site to read more about taking out a home loan.