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Between a fixed and a variable home loan, the best choice will depend on your current circumstances and future plans. It will also depend on whether you're buying a property as the home you'll live in (referred to as 'owner occupier'), or as an investment property. You may want a fixed rate, have the variable option, or even a bit of both.
Here's a quick guide to help you understand the difference between fixed and variable loans so you can find one that suits you. We've also included some other useful information about the importance of pre-approval.
A fixed rate home loan means your rate is just that – fixed. You will know exactly how much each repayment will be for the duration of your fixed term. Many people find this gives them a sense of security. Some lenders may allow you to fix anywhere from one to five years.
However, it's important to know that if interest rates drop this won't be applied to your home loan. Or, if you wish to switch home loans or break your fixed term contract before the agreed term is over there may be additional fees and charges involved.
With a fixed rate home loan, you may still have the option to repay more than the minimum repayment per year (up until a capped amount) without incurring any additional fees from your lender. This is a great option if you are trying to get ahead on your repayments.
A variable home loan rate is dependent on several factors. The rate you have today may not be the rate you have in a few months or even a few years' time, but you won't be locked in. Your rate can increase or decrease based on certain economic factors out of your control.
If the cash rate does go down your interest rate might also drop, which means you'd pay less interest on your mortgage. However, if the rate goes up your interest rate might also increase, meaning you could have higher repayments.
Contact an HSBC home loan specialist today for more information.
An interest only loan will mean you are only paying the interest component that is being charged to loan, not the actual loan itself. This is referred to as the principal. For example, if you've borrowed a loan amount of $400,000 and decide to pay interest only for 2 years, at the end of the 2 years the balance will still be $400,000 – something to consider.
You may decide you don't want to commit to a fixed, variable or interest only rate but have a bit of each. You can speak to your lender about flexible options of fixing part of your loan, keeping the other portion variable or keeping a portion as interest only. Always speak to your lender and think about what will work best for you.
Do some research, use tools such as our online calculators, take a look at lenders' options, and speak to trusted friends, family or even colleagues about their experiences. If you'd like advice as to which home loan may be suitable for you, make an appointment with a lender to see a home loan specialist.
They can help review your financial situation and will provide suggestions and recommendations as to which home loan product is most suitable for you based on your needs and the information you provide.
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Once you've done your research on what type of home loan you feel is right, speak to your lender to apply for pre-approval. This will give you a better idea how much you can afford to spend on a home, the type of loan that may be suited to you, and help you find a property within your budget.
Your lender will assess you as a candidate and your needs. With most lenders your pre-approval is valid for around 3 months.
While pre-approval isn't a guarantee, it can be the first step in obtaining your home loan. When you do find the right place to purchase, it can help speed up the process as your home loan application will be based on the information you have already provided, such as:
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This article is intended to provide general information of an educational nature only. This information should not be relied upon as financial product advice as it does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of the information to your own circumstances and seek independent legal and financial advice prior to making any investment choice. There are risks associated with any investment and this document is not intended to list all of them in respect to any particular investment opportunity. Prices, levels and indications contained in this document are illustrative only and may not represent future performance. HSBC does not warrant or represent the performance of any investment opportunity.
Disclaimer: Credit provided by HSBC Bank Australia ABN 48 006 434 162. AFSL/Australia Credit Licence 232595. Home Loan Terms (PDF), Personal Banking Booklet (PDF), Fees and Charges (PDF), and lending criteria apply. This article does not take into account your personal or financial situation. Please consider a relevant Product Disclosure Statement, available at hsbc.com.au or by calling 1300 308 008 before making a decision about this product.
