Is it good to have a fixed home loan rate?

posted 24 Feb 2013, 12:49 by Lara Whybrow   [ updated 24 Feb 2013, 12:51 ]
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James Robert is a reputed financial analyst who is associated with North Coast financial services and loves to share his knowledge on different topics related to budget and finance.

When you are borrowing a home loan, the first question that comes up in your mind is whether you should opt for a fixed or a variable rate. As a borrower, your target will always be to save money when you are taking a loan. You might think it is better to have a fixed home loan rate as you need to pay the same amount throughout your repayment period. But in the long run, you might end up paying more than you would have to with a variable rate. To get the best advice you can hire North Coast financial services. So let us have a comparative look at fixed and variable home loan rate.

Risk associated with Variable Rates

A few years back, the state of the economy would determine the interest rates on the variable rate. This meant that with rise in the economy, the interest rate would rise. This was because, with the rise in economy, the wages would rise, which in turn would boost up the jobs thereby increasing the rates. This would mean that the risk of borrowing with a flexible rate was low. 

But times have changed since October 2007. During this time Bank West which is now owned by Commonwealth Bank broke the norm. They did not keep their rate of interest in tandem with the Reserve Bank of Australia and increased them. Soon after, many lenders started taking the same approach. So now, just the economic condition cannot only determine the variable charge. It is now really risky to go for variable rates. However, if you are able handle the risk of high interest rates, you can benefit from variable home loan chargesNorth Coast financial services can assist you in handling these risks.   

Fixed home Loan Rates have their own Costs 

If you think going fixed will help you to avoid all the hassles, you are mistaken. It is true that fixed rates do not bring with them the risks of losing your property or having any arguments with your lenders regarding the payment. However, in the long run you might see that fixed rates will cost you more than what you would have to pay with flexible charges. You might assume the rate of interest will rise in the future but in reality the opposite can happen. This will cause you to pay more with the variable loan rate.  

When to fix your loan?

Since borrowing home loans is one of the most important decisions of your life, you need to take many things in consideration. You have to review the loans regularly and see whether the structure is effective for you and whether you have attained you fiscal goals and how you can keep on developing those goals. If you have started out with flexible loans, you can review every three months and in case of fixed loans, you can do so before it gets expired. 

The choice of loans depends on your need and budget. If you want to maintain a fixed budget, it is better to go for fixed loans. The main aim should be to get the best price possible. To guide you in the right path, you can take the help of North Coast financial services.