When taking out a new home loan or refinancing one, you are asked to choose between a fixed-term and a variable rate loan. Both have their own unique benefits and challenges depending on your financial circumstances and personal preferences.
When you take out a fixed-rate loan from a financial institution, the rate of interest you pay on your loan doesn’t change for the duration of the fixed term even if your lender changes interest rates.
A fixed-rate home loan is where you take out a loan from a financial institution at a fixed rate for a certain period of time, and the interest rate on it doesn’t change during the fixed term despite the rates going up or down.
Mortgage broker Peter Ruddock runs Mortgage Choice with his wife in Melbourne’s eastern suburbs.
He says the fixed term is usually from one to four years.
“A fixed-rate loan [is] where you agree with your lender how long you’re going to fix your loan for, so it may still be a 25 or a 30-year loan term, but you agree that you want to fix the rate for example for three years. You now know what the interest rate is. The Reserve Bank can change things, but it won’t change the interest rate on your loan.”
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