Just as with regular loans, when you take out a product with Redrock like a low documentation loan, you may be able to select between a fixed or variable interest rate. The type of interest rate you choose will have a significant bearing on your financial planning throughout the entirety of the mortgage.
But how do you decide which kind to go with? Here are some tips on what each type of interest rate can provide for you.
Fixed rate reliability
Engaging a fixed rate home loan product means you know exactly what you’re getting over a longer period of time, usually measured in years. Your rate stays the same, protecting you against any general interest rate increases. These can be driven by the Reserve Bank of Australia’s monthly cash rate announcement, among other factors. It’s good for stability, but can mean you miss out on lower repayments if the cash rate falls during this period.
The fixed rate may change at the end of the set length of time, but is overall a good option for those who want to know exactly what their payments are going to be each month.
Variable rate values
Variable rate loans can come with a little more risk, but if your financial position is strong they can be beneficial. Variable rate loans generally move with the interest rate each month, meaning you may pay different amounts each time. This reduces the stability of your monthly budgeting, but can result in smaller payments than with a fixed loan. Of course, the alternative is higher payments than expected due to interest rate rises.
Choosing the ideal interest rate depends on your financial situation. A self-employed home loan applicant may be in a strong financial position and able to go with the variable rate, while a bad credit loan applicant could be in a better position for fixed rate stability. You can speak to a Redrock representative for more information and advice.