The rate of interest you’ll pay on your mortgage depends on a combination of factors. This can include the Reserve Bank of Australia’s (RBA) cash rate, your lender and the type of loan you have.
When working through your loan options with your mortgage broker there are a number of issues to keep in mind to ensure you’re getting the most appropriate mortgage for your needs.
Different loan types tend to come with different interest rates. So if your loan has a range of features, such as re-draw, offsets or early repayment facilities, you’ll usually
pay a little more in interest.
Alternatively, while a basic loan doesn’t have all the bells and whistles of other products the interest rate is typically lower.
When assessing which home loan best suits your needs, ask your broker to explain how the different home loan features work to assess whether they are worth paying a higher rate for.
For example, if you’re looking to drive your mortgage down quickly or would like flexibility in your repayments, it may be worth paying for the features needed to do this most effectively.
Rates move up and down in line with the economic current cycle. Currently, some borrowers are choosing to fix their home loan rate – or ‘lock in’ a rate for a set period of time. If you’re considering this option, it’s important to remember that a fixed interest
rate can be higher than the variable rate. However, if rates are on the rise and you’re concerned they’ll keep going up, fixing your rate will ensure consistency in repayments each month.
Alternatively a split loan can give you the best of both a fixed rate and variable rate loan. This means that if rates rise, a proportion of your loan will be protected – minimising the impact of higher monthly repayments. If on the other hand rates fall your fixed rate will remain higher and the variable part of the loan will fall.
