Mortgages – Fixed Or Variable?
As property investment consultants and builders of wealth, one of the most common questions we get asked is what sort of mortgage should I go for? Fixed or variable? In fact it is the number one question mortgage brokers around the world get asked by every single one of their clients.
Whilst the crew at Fountain Property Group don’t have a crystal ball and cannot predict the future we can offer a fountain of information when it comes to historical data and information on these two forms of mortgage. All loans, including personal loans, credit cards and mortgages, have their interest rate set according to the prime interest rate that is set by our country’s governing body.
In Australia, this governing body is the Reserve Bank of Australia (RBA). The RBA will assess a complicated variety of indicators and trends to establish this rate. These factors may include, but are not limited to:
- the employment rate
- consumer spending
- commodity pricing
- labour costs and availability
- inflation
- and the Australian Dollar value
- Variable Loans
The variable loan will be based on the rate that is set down by the RBA. Lending institutions will then add their operating costs and of course profit to the deal. This market is fairly competitive with many options to choose from. Whatever the market is doing, the variable interest rate will follow. If rates increase – so will you repayments. If the rates decrease, so will your payments.
Fixed Loans
A fixed rate loan means that you will know exactly what you are paying from the moment the loan is taken. Whatever the market is doing, the fixed interest rate will remain static for the term of that agreement. This means that whether rates increase or decrease your payments will remain the same. This is a great way for people who need to maintain a budget.
Which is Better?
Back to that magic question. Which is better? Both styles of loan have their advantages and disadvantages. We offer the classic answer, being that it depends on your own personal situation.
Things that you can assess to help you make this decision will include:
- How much can you afford to pay?
- If the interest rates were to rise could you afford it?
- How long do you intend to hold this mortgage for?
- Does the fixed rate have any controlling factors such as no extra payments allowed or penalties for paying out early?
- Which way is the market trending?
For more information, have a chat with one of our consultants.