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Loan Interest Rates

Interest Rates – Fixed, or Variable?

The battle between fixed and variable mortgage interest rates has been going on for decades, with many experts claiming that fixed rates offer a substantially more secure method of repayment, whilst others argue that variable options boast a greater potential for savings. The truth is that both types boast their own unique disadvantages and benefits, so it really comes down to the applicant’s own preference – or at least their financial stability. Mike Reed provides some insight to the interest rate market:

Variable Rates

As the term might suggest these rates are typically variable in nature, in that they are prone to fluctuation and can be affected by economic, governmental and financial factors. When applying for a mortgage, a bank will present an interest rate that will be added on to repayments, but in the case of variable options there’s no guarantee that this amount will always remain the same.

That’s not always a bad thing however, especially when buying in Australia; a country with an extremely stable economy. The worst case scenario is that a borrower may be expected to pay back more than they originally agreed, but the best case scenario is that the rates will decrease and require lesser payments.

Fixed Rates

Fixed rates offer applicants a way to ensure that their repayments stay at the agreed rate – although this isn’t often permanent and in many instances the terms will have an expiry date. They can be very beneficial in instances when market rates increase, as those with a fixed rate mortgage won’t be required to cater to these additional fees.

These rates can be also be detrimental to a repayment plan too; if market rates decrease, then the applicant won’t be in a position to enjoy the lower costs. On one hand the advantage of secure payments means that a financial budget can be set and followed, but on the other hand the ability to take advantage of lower costs will be completely nullified. For some, being able to define a set budget may be more attractive than possibly saving small amounts on their bills intermittently – so preference really is key to choosing the right mortgage rates for individual needs.