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There are two types of home loan interest rate, variable and fixed. They work slightly differently:
Most Australian borrowers go for variable rate loans. Most of the time, these rates are lower than fixed rates (although in the last few years some fixed rates were lower). And their flexibility is important. Variable rate loans are much more likely to allow you to make extra repayments, letting you get out of debt faster. If you want to exit or refinance a fixed rate loan, you may get hit with some big fees.
But for a borrower who wants to know exactly what their repayments will be and lock in a good deal right now, fixing is definitely a strategy to consider.
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When the fixed period on a home loan ends, it reverts to a variable rate. As most home loans have 30-year terms, even if you do fix your rate for a few years, most of your loan will end up being variable anyway.
The real question is what do you want from your home loan. This helps you decide which rate type suits you best. Here are some examples to help you think about your own situation.
If you still can't decide which rate type is right for you, there's a third option.
If you really like the idea of fixing your interest rate, but you don't want to lose the flexible features available on your variable loan, you can choose to split your home loan. A split rate home loan is when you divide your loan into two (or more) portions; one locked into a fixed rate and the other variable.
This lets you enjoy some of the advantages of both rate types at the same time.
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If we sell our house after 5 years and our loan is variable over 25 years do we have to pay the whole interest owing for total of 25 years or does the bank work out interest owing for 5 years and penalty fees?
Hi Cath,
Thank you for reaching out to finder.com.au a financial comparison website.
If you have been repaying your loan with principal and interest repayments you will only be repaying the remaining principal and interest amount that you owe to the lender, they will not also work out how much interest you would have repaid during the life of your loan.
You may be able to ask your lender for a payout amount for a specific date to give you an idea of how much you will repay.
Regards
Jodie
Regards
Jodie