The interest rate matters when looking for a good deal on a home loan (mortgage). A mortgage is a long-term debt, so even a small variation in the interest rate makes a difference over time.
Mortgages come with different options and features such as “variable” or “fixed” interest rates. These features provide flexibility or let you pay off your loan faster. Some options could cost you more, so make sure they’re worth it.
The appeal of variable rate home loans is that they tend to be more flexible than fixed-rate loans. For example, variable rates will rise and fall with market interest rates. This alignment with market rates means your home loan repayments increase or decrease depending on how rates are moving.
By contrast, a fixed rate is locked in for whatever term you choose – usually between one and five years. During this time, the rate, and your loan repayments, will stay the same regardless of what happens to market interest rates. This feature makes a fixed-rate useful when budgeting for the cost of a mortgage.
Many lenders also let you split your loan if you’re unsure whether a fixed or variable rate is the way to go. A split loan means that part of the mortgage has a fixed rate while the remainder has a variable rate.
Important note: This information is of a general nature and is not intended to be relied on by you as advice in any particular matter. You should contact us at Defence Bank to discuss how this information may apply to your circumstances.