If you are a home owner or if you are in the market to buy a home then there is one topic that is the most important to you, home loan rates. If you own your home already then maybe you have already made your decision about having a fixed home loan rate or a variable rate. If you are looking to buy a home then this might be one of the biggest decisions besides the actual home itself.
Depending on who you ask, you will get a wide range of explanations on why one is better than the other. There are some basic rules about how it works and depending on what you think your situation will be and what you think the market will be like in the future, you can make your own decision.
Home Loan Rates
A fixed home loan rate will protect you against unpredictable interest rate changes and you will have your cost set so you will be able to have a fixed budget. Many people like a fixed home loan because they are unsure about rising interest rates. Knowing what your mortgage payment will be every month will give a home owner peace of mind. If interest rates do fall however, a fixed home loan rate will mean that the lender will miss out on lowering rates since their loan is already fixed. Fixed rates can also have penalties for early repayment.
A home owner with a variable home loan rate will be able to take advantage of lowered rates but they will also be vulnerable to rising rates. The cost of the loan might go down significantly as the rates fall. As the rates go up then the cost of the loan will rise with the rates. If you think that rates are about to go down for the next few years then you might possibly benefit from a variable rate loan.
It is important to see how rates have been moving in the past to get an idea of how they might move in the future. As rates go down, banks will begin to go to war over getting new customers to lock into their competitive home loan rates. The best way to take advantage of both scenarios is to get a split rate. Having part of your home loan set at a fixed rate and the other part at a variable rate can give you the benefits of both worlds.