It’s a question that never goes away and, because it will ultimately be your decision, it’s essential you weigh up all your options before signing on the dotted line.
Buying a property is likely to be the most significant monetary purchase you’ll ever make, so it’s worth putting the time in first, because it can have major financial implications for many years to come.
Fixed or adjustable?
1. Fixed rate
- You don’t have to stay awake at night worrying about the next rate rise.
- You think you will stay in the same home for a long period of time and hope to pay off your mortgage.
- You are lucky enough to buy at an opportune time with low interest rates, so it will be cheaper over the long-term.
- You’re worried a rate rise could be unaffordable for you.
- When there’s a rate cut, it won’t benefit you, which can be annoying
- Less agile: fixed loans can be liable to extra fees if you change or sell your home before the fixed rate period is completed.
- Fixed loans can be more restrictive if you want to increase your payment at anytime. They can be either disallowed or be subject to fees.
2. Adjustable (variable) rate mortgages.
- You think lower rates may become available in the future, and you can take advantage of them.
- You believe you are likely to move after a shorter period of time.
- If rates drop, you have the potential to adjust your mortgage accordingly.
- You think you might invest elsewhere, so don’t want your home to be your sole investment option.
- No set price means you may need to readjust your monthly budgeting.
- The rate could rise to the point where they become unaffordable.
- Unpredictable – the rate can go up and down, or just keep rising.
3. The best of both worlds.
Nowadays, the competitive home loan market has opened up your choices and, for many people, a combination of both a fixed and an adjustable mortgage is a popular option.
It means you can fix the fist portion of the loan, such as for the first 5 years, and then the remainder of the mortgage is subject to the market rate changes. Alternatively, you could go for a 7 or 10 year fixed rate, before they become adjustable.
There is even (for a 30 year loan) half and half option – with a 15 year fixed rate, followed by an adjustable rate thereafter.
4. What about YOU?
The majority of people seem to move more often than they used to, so flexibility is important. If you think you’re likely to move in, say, 5 or 6 years, you need a mortgage that allows you to do that with incurring extra fees or penalties when you choose to move on.
Also, if you think you might be able to afford it, make sure you select a mortgage that allows you to make extra payments. This can potentially save you many thousands of dollars over the long term and allow you to own more or all of your home sooner.
Remember, when you are shopping for a home, to shop around for the best mortgage deal out there for you. There are banks, credit unions and independent mortgage operators all keen to attain your business, so take your time and don’t sign until you’re completely happy.