Knowledge Base

Variable vs fixed rate loans

There are hundreds of different loan products on the market. Our experts can help to explain the features and benefits of all the different loan types on the market and ensure that your finance is tailored to suit your individual needs now and into the future. Contact us today to have an obligation free appointment and let us tailor a lending solution for you.

Benefits of Variable Rate Loans:

• You can make extra repayments, thus paying off your loan
• You get more features including unlimited redraws or the ability to save interest by setting up an offset account.
• It’s easier for you to switch loans if you find a better or cheaper deal with another lender.

Benefits of Fixed Rate Loans:

• You’ll know exactly what your repayments are each week, making it easier for you to save money and budget from week to week.
• You won’t experience any rise in rates, meaning you won’t be hit with high repayments.

A comparison rate includes the interest rate as well as certain fees and charges relating to a loan. The aim of the comparison rate is to help you identify the true cost of a loan and compare loans and services offered by financial institutions and mortgage providers.
The formula for calculating a comparison rate is regulated by the Consumer Credit Code, and all Australian financial institutions and mortgage providers use this same formula.
Comparison rate is calculated in a $150,000 secured loan, over a 25-year term.

To fix or not to fix — that is the question most borrowers struggle to find the answer to. When choosing a home loan, it is important to weigh your options to ensure that you would not hurt your budget too much in the process of settling repayments. Choosing between a fixed rate and a variable rate could mean thousands of dollars in savings.
Most borrowers are attracted to the certainty a fixed-rate home-loan product offers, especially those who are budget-conscious. In fact, it is advisable for first-home buyers to take on a fixed-rate loan to be able to organize their budgets easily and to stay on top of their repayments.
However, there are some things you must consider first before you decide to fix your home-loan rate. While these things are not necessarily bad, it pays to know how a fixed rate will affect your home-loan journey.
1. Less Flexibility- Fixed rate are not flexible like the variable rates i.e., you can not make unlimited extra repayments. Penalties apply if you repay more than the allowed extra repayments.
2. Break cost- If you decide to pay off your home loan or change your lender during the fixed rate then the high break cost may apply.
If you want to take advantage of the flexibility of repayments of the variable rates as well as take advantage of the low fixed rates, then you can consider splitting your home loan between fixed and variable rates.

Getting Centrelink benefits doesn’t mean that you have to give up your dream of owning a home. Your home loan application will be the same as anyone else’s – you save up a deposit and borrow money. However, if you are looking for a lender who will consider your Centrelink payments as a source of income, the options are much fewer. While some lenders do consider a few Centrelink payments as part of your income, they have a much stricter application process.
If your only source of income is the Centrelink payment, your application is unlikely to be approved. Your chances improve if someone in your house is employed and you can show that as proof of stable income. A few lenders will accept Centrelink payments as the sole source of income from single parents or those on a war veteran pension, but the interest rates they charge may be higher. The policy differs from lender to lender, contact us to know which lender can help you.

The borrowing capacity is the amount of money a lender will loan to you, but how is this assessed?
Lenders calculate your borrowing capacity using an assessment rate to examine your application. They have their own assessment rate and it’s based on their appetite for risk, which is why your borrowing capacity may vary from one lender to another.
Aside from the assessment rate, a lender may also consider other factors and account for all your incomes. Your financial dependants are also considered when assessing your borrowing capacity.
To calculate your borrowing capacity, you may need to provide the following information:
• How many applicants are applying for a mortgage
• Number of dependents
• How much your annual salary is before tax
• How much rental income you receive from properties
• Other regular income
• Living expenses
• Other loan repayments
• Other commitments
• Combined limit of credit cards, store cards, and overdrafts

If you would like to get a rough idea of how much you can borrow, use our Borrowing Capacity Calculator.

The LVR stands for Loan to Value Ratio. It is the percentage of money you borrow for a home loan compared to the value of the property. It is used to assess your risk factor as a borrower; lenders will calculate your LVR before deciding whether or to approve you for a home loan.

An offset account can reduce the interest on your loan while maintaining instant access to your funds. On the other hand, a redraw facility allows you to make extra repayments, helping you shave years off your loan term.
The offset account is like any other everyday account, so it’s the most accessible. Redraw can vary between lenders, they may have a minimum required amount per redraw, or even redraw fees.
There may be different tax implications with using your redraw feature and offset account if you decide to rent out your home in the future. If you decide to rent out your home as an investment property, the interest charged on the loan may be tax deductible. But you may not be able to claim any portion of the loan you have redrawn from your redraw facility for non-investment purposes like a holiday or a private car.
On the other hand, withdrawing amounts from your offset account won’t affect the tax deductibility of interest charged on your loan. If there is a possibility that your first home could one day become an investment property, we suggest you seek financial advice on the best way to reduce interest on your loan by using a redraw or offset account.