Fixed vs. Variable
What's the difference between fixed-rate home loans and variable-rate home loans?
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What's the Difference between
Fixed and Variable Home Loans?
Let us guide you on the differences between fixed and variable home loans and give you some clarity and understanding around which one is right for you.
You'll know exactly how much you'll have to repay during the fixed period.
Ability to avoid unpredictable interest rate hikes for a few years.
Access to variable-rate benefits when the fixed-rate period ends.
Lenders cap or restrict the number of repayments during the fixed period.
Lenders often cap, restrict or disable redraw of funds during the fixed period.
Most lenders allow unlimited additional repayments.
Lenders will have an option for 100% offset on their variable products (annual fee may be applicable)
Most lenders offer redraw facilities for your additional funds
Subject to market instability and interest rate increases for the entire duration of the home loan.
When fixing your home loan is not a good idea?
Everyone's financial situation is different and you need to know the reasons why fixing your home loan might not necessarily be the right choice for you.
You need to make large extra repayments on your loan.
You plan to sell your property within the fixed term.
You plan to refinance your home loan within the fixed term.
You plan to renovate or build a new home and plan to use the equity within the fixed period.
You don’t like being locked in with a particular lender or loan product.
Are there any restrictions on fixed-rate home loans?
Yes, there are many restrictions on fixed-rate loans that apply but vary from lender to lender. These are some of them.
Your extra repayments will be limited
Generally no more than $10,000 p.a. before penalties apply.
You may not be allowed to link an offset account to your loan.
You may not be allowed to redraw any additional payments that you have already made.
You may have to pay significant exit fees if you make extra repayments, refinance, change loan types, sell your property or pay off your loan.
How long should you fix your home loan rate for?
The longer you fix your loan, the higher you will pay for the security of a fixed interest rate. Most borrowers choose 3 year or 5 year fixed rate loans, so the banks and some private lenders often have deals for these terms.
Most borrowers choose their fixed-rate term based on what they believe the future of interest rates will be, and when they expect their circumstances or needs may change, so that they may need to refinance their loan, make a large payment off the loan or sell their property.
You should assess your own future personal needs before you decide on fixed vs variable.
How can we help you?
With Chardon Home Loans, we take a personalised approach to help you choose between getting a fixed or variable home loan approved from our network of specialist lenders.
Book a meeting with one of our brokers
Provide us with some information about your financial situation
We find lenders that offer a suitable loan solution
Submit your loan application
Eligibility and approval is subject to standard credit assessment criteria.
For more information please download our credit guide.
Read some of what our clients have experienced choosing us as their mortgage broker.
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What is a mortgage broker?
A Mortgage Broker is someone who will help source a home loan that best suits your needs. Mortgage Brokers can offer multiple products for various lenders uniquely placing us as the best place to get a home loan.
If you go to a lender and they cannot help you, you’re stuck. With a Mortgage Broker, we are more likely to have a solution because of the network of lenders we work with.
Why should I use a mortgage broker?
Where to start?!?!
If you walk into a branch of a bank, they absolutely will not tell you about the better product that’s on offer by another lender down the road. We will!
If you go directly to a bank, it is unlikely that you will be talking to the same banker in 2-3 years’ time when you are ready to refinance. This is our career and we are here to work with you over the life of your mortgage
In our experience, our clients have raved about how much insight Mortgage Brokers are able to provide in helping you buy your first property. We can run property reports, give you tutorials on buying via private treaty and auction, and we can help you plan into the future based on your needs and wants
How do mortgage brokers get paid?
Mortgage Brokers are paid by the lender that you choose. We are paid on a commission only basis.
If you were to go directly with a lender, they have to pay their loan writer a salary, a car, laptop and mobile before they’ve even placed you with a product. With a Mortgage Broker, we’re only paid once you’ve settled your loan (a month after in fact!).
Further to this, if we’ve not done a good enough job and place you with a lender you’re not happy with and you leave that bank within 12 months, we lose all our commission that has been paid. If you leave the lender we placed you with within 18-24 months we lose 50% of our commission. It’s in our best interest to make sure we offer you the best possible products and service otherwise we’re financially punished for not doing our job well (as it should be!).
As to how we are paid, there are two ways. The first is via an ‘upfront’ commission. When your loan settles, we are paid an upfront commission that averages at 0.60% of the loan amount. Then for the duration of that loan, we are paid a trailing commission of 0.15% p.a.
And Mortgage Brokers are fully transparent about their income. We have disclosure documentation which shows how much we will earn from your mortgage that you need to sign in order for the application to be lodged. And your loan documents usually disclose how much we’ll be paid also.
Does a mortgage broker save me time?
Loads! Have you ever tried working with a lender on an application by yourself? It’s a nightmare!
We have industry specific tools that enable us to provide a seamless process and years of experience means we can give you the best guidance. And it’s us that does the chasing. Rather than you sitting on hold for an hour waiting for the backlogged lender to pick up the phone, your broker can do that for you. And not just while you’re going for the loan, but also post-settlement.
We’re here for you and that’s why we’re paid a trailing commission to be your contact with your lender.
What qualities and credentials should I look for in a mortgage broker?
A good place to start is a recommendation from someone you know who has also had a good experience. Failing that, look for online reviews as people tend to be very honest when it comes to the service industries about how good their experience was.
And when you meet your broker, you want establish trust early on, get a sense of how transparent and honest they are and look to see that they do what they promise to do.
How is your interest rate better than a bank?
If you walk into a bank, you might get a good product. But the selection is limited because they can only provide their own products.
With a Mortgage Broker, we are talking to all the banks and lenders. In many cases we will have lenders on our panel that you may not have heard of that might be the lender that offers you the best deal.
What's the difference between fixed rates and variable rates?
As the name suggests, variable rates are interest rates that can vary. How they vary can be down to either lender discretion (the lender choses to raise or lower rates) or through market triggers such as the Reserve Bank cash rate moving up or down.
With fixed rates, your interest rate is fixed at a point in time and you will not benefit from subsequent market interest rate reduction during fixed rate period. You need to be aware that the interest rate may change between the time of approval and the time of drawdown if rate lock has not been obtained.
You will have limited or no ability to make additional repayments when the interest rate is fixed. You may not have the ability to redraw or utilise an offset account to reduce interest. Possibility of expensive break costs if, during the fixed interest rate period you:
Repay loan in full
Switch to another product or loan type
Make additional repayments
Sell the property
Seek further funds
What is the difference between offset and redraw?
An offset facility is an account separate from your mortgage and the funds are generally accessed via a debit card. You can deposit and withdraw funds from this account just like a regular account. The main difference is that any funds held in this account reduce how much interest you will pay on your mortgage. To be clear, on principle and interest repayments, this does not reduce your minimum loan repayments. The net effect is that it speeds up how quickly you repay your loan. For example, if you have a 25 year term, you might have enough funds in offset to reduce that down to 20 years.
Redraw is additional funds held in your mortgage. So unlike making additional repayments into offset, because the additional funds are in your mortgage, you will need to transfer them into a regular account in order to gain access.
Everyone always asks which one is better. The answer is that it comes down to your circumstances. If you want regular access to your additional savings then offset may be the way to go. If you just want access to those additional funds for a rainy day or in case of an emergency, then redraw might be the better option. The biggest difference (generally) is that the ongoing cost of a redraw facility is $0 whilst an offset facility can cost between $180 and $395 per year
What are exit fees?
Should you sell your property or refinance your property, the exit fees are the reasonable costs for the lender to discharge your mortgage. These are generally between $200 and $400, however, these fees will be disclosed in your original loan agreement.
NOTE: If you end your fixed rate early, there will be an additional exit cost. Because you have contract to stay with the lender for a certain amount of time and you are leaving early, there is a cost commonly known as an “Early Repayment Adjustment”. This varies between lenders and is dependent on how early you are leaving, your loan balance and the original fixed term. The best way to ascertain this figure is to call your lender directly.
What do I need to complete a loan application?
Firstly, on your personal circumstances. Secondly, on the type of transaction. And finally, it can depend on which lender you are using.
As a rule of thumb, be prepared to hand over items such as:
ATO Notice of Assessment
The above list is not extensive, but depending on your circumstances, transaction type and bank, you may not need to supply all of these.
Further to this, your broker will need to capture all of your personal information such as your employment history, assets, liabilities, income and product needs and your personal objectives.