Fixed Verses Variable - What Works For You?
Looking for a way to save money? Have you been considering taking out a loan for some long overdue home renovations? You don't have any spare savings lying idle in a bank account. A fixed interest loan may suit your need and budget.
Have you been thinking about applying for a fixed interest loan or maybe a variable interest loan would suit your need. Confused? Well read on and see what may work for you.
Before we go any further consider what you need the loan for and have you set out a budget to make sure you will be able to repay the loan. Do you have your financial information in order as the lender will require additional information about yourself and your current financial status.
Personal Information that the lender may require include:
Your loan options. Lets firstly look a variable rate loan.
The word variable means fluctuation. The increases and decreases in rates run parallel to the official cash rate nominated by a countries money controlling institution. In Australia, this is the Reserve Bank. This is why the interest can fluctuate.
This then means that your payments will also fluctuate over the period of the loan, hence the loan term variable. A variable loan may allow you to payout your loan sooner by making extra payments. A home loan as a variable loan should include some basic variations such as the extra repayments or a redraw facility.
For these types of services talk to your financial institution as to any extra offers they will include with the loan. This is especially important when you are looking at a variable home loan.
The other loan option. A fixed interest rate loan. Once again the term, fixed, is as it states. This is a set interest rate over, either the life of the loan or for a period of time usually 1-5 years. This type of loan can work for you if the market is volatile and interest rates on the increase. Or if the money market is experiencing high fluctuations.
These periods of unrest can be a couple of years in duration so a fixed rate may save you any future interest rises. With a fixed rate your repayments will stay the same for the time you have locked that interest rate in. So one of the advantages is that you won't get any notifications about an increase in you repayments due to a rate rise.
But also you will not get a reduction in your repayments if the interest rates drop as in the variable loan. A fixed rate may also attract a higher interest rate on the initial borrowing but if you are confident that you have a good deal then lock it in. If interest rate look to be on the decrease, you can, what is termed, break the fixed loan period.
But discuss this with your lender as breaking the loan can incur extra fees and charges and this action may not prove to be a saving at all in the long run.
All of the above information is to try to explain the difference between these common type of loans. If you need further information the net is a great way to explore loan options. If you find you are still not sure speak to a financial adviser or your bank and make certain that you understand all of the terms and conditions that apply to any kind of loan.
Have you been thinking about applying for a fixed interest loan or maybe a variable interest loan would suit your need. Confused? Well read on and see what may work for you.
Before we go any further consider what you need the loan for and have you set out a budget to make sure you will be able to repay the loan. Do you have your financial information in order as the lender will require additional information about yourself and your current financial status.
Personal Information that the lender may require include:
- A valid driver's license as proof of identification
- Proof of where you live as in a rate notice or utility account that is in your name.
- An income statement such as a pay slip and bank account details
- A list of current debts or any form of liabilities
- Statements from any savings accounts or investments such as shares or term deposits.
- By having all of these items organized it will smooth the application process.
Your loan options. Lets firstly look a variable rate loan.
The word variable means fluctuation. The increases and decreases in rates run parallel to the official cash rate nominated by a countries money controlling institution. In Australia, this is the Reserve Bank. This is why the interest can fluctuate.
This then means that your payments will also fluctuate over the period of the loan, hence the loan term variable. A variable loan may allow you to payout your loan sooner by making extra payments. A home loan as a variable loan should include some basic variations such as the extra repayments or a redraw facility.
For these types of services talk to your financial institution as to any extra offers they will include with the loan. This is especially important when you are looking at a variable home loan.
The other loan option. A fixed interest rate loan. Once again the term, fixed, is as it states. This is a set interest rate over, either the life of the loan or for a period of time usually 1-5 years. This type of loan can work for you if the market is volatile and interest rates on the increase. Or if the money market is experiencing high fluctuations.
These periods of unrest can be a couple of years in duration so a fixed rate may save you any future interest rises. With a fixed rate your repayments will stay the same for the time you have locked that interest rate in. So one of the advantages is that you won't get any notifications about an increase in you repayments due to a rate rise.
But also you will not get a reduction in your repayments if the interest rates drop as in the variable loan. A fixed rate may also attract a higher interest rate on the initial borrowing but if you are confident that you have a good deal then lock it in. If interest rate look to be on the decrease, you can, what is termed, break the fixed loan period.
But discuss this with your lender as breaking the loan can incur extra fees and charges and this action may not prove to be a saving at all in the long run.
All of the above information is to try to explain the difference between these common type of loans. If you need further information the net is a great way to explore loan options. If you find you are still not sure speak to a financial adviser or your bank and make certain that you understand all of the terms and conditions that apply to any kind of loan.