Choosing between variable and fixed rate home loans can be a challenge for new homebuyers, with both options boasting advantages and disadvantages. Although your mortgage broker can give valuable advice on what type of home loan is best suited to your situation, you may later wonder if it’s possible to make the switch from a variable loan to a fixed rate. In this blog, we’ll explain if you can change loan types and what benefits you may reap from switching from a variable to fixed rate home loan.
Understanding the benefits of variable and fixed rate home loans
When considering switching home loan types it’s important to weigh up the benefits of variable and fixed rate home loans, and to assess which is best suited to your financial situation.
Fixed rate home loans
A fixed rate home loan means that your interest rate stays the same for a set period of time, which will usually be between one and five years. Once you’ve reached the end of this fixed rate period, your loan will change to a variable rate unless you elect to fix it again. The advantages of a fixed rate home loan include:
- By nature, a fixed rate home loan means that you will be paying the same amount despite rate fluctuations in the industry. This can be very helpful with budgeting and managing your finances.
- Since your repayments will stay fixed during the set term, any interest rate rises won’t affect you.
Variable rate home loans
If you choose a variable rate home loan, your interest rate will vary depending on the Reserve Bank of Australia’s official cash rate and how your lender responds to these fluctuations.The advantages of a variable rate home loan include:
- Variable rate home loans offer more flexibility for borrowers in terms of your repayments and how quickly you pay off the loan. You will also be able to refinance with ease, without having to worry about a break fee.
- You will have access to more features, such as offset accounts and redraw facilities.
- If interest rates happen to drop, your repayments will reduce accordingly.
Is switching from variable to a fixed rate possible?
If you’ve decided a fixed rate home loan is now a better match for your circumstances, it is possible that you’ll be able to switch your home loan type. Your mortgage broker will be able to talk you through the process, while providing advice on whether the change of loan type is in your best interests. There are several factors that your mortgage broker will consider when assessing if switching from a variable to fixed rate is suitable for you, such as:
- Whether you are eligible to change your home loan, based on your repayment history and having sufficient equity.
- Weighing up the costs of changing to a fixed rate, and if these fees and charges outweigh the benefit of changing loan types.
- Fixed rate offerings are changeable, and your broker will be able to assess if you’ll be getting a competitive deal making the switch at that particular time.
Contact your mortgage broker for help switching to a fixed rate home loan
Speak to a mortgage broker for expert advice on what type of home loan is the best fit for you, and if switching home loan types is a feasible option. Our team of expert mortgage brokers can help you with your home loan needs. Book an appointment with one of our Borro brokers today or call the team on 1300 1BORRO.
