Fixed Rate Home Loans
A fixed rate home loan is a home loan that locks in a specific interest rate to be charged on repayments over a specific period of time.
The fixed rate home loan suits you if you are worried that interest rates might rise. It provides you with the security of consistent repayments that will not increase
Most people choose to lock in their rate in a fixed rate home loan for one to five years. When that period ends, you can choose between fixing the rate again or switching to a variable interest rate.
A variable interest home loan is the opposite of a fixed rate home loan: it's a loan with an interest rate that varies to reflect a benchmark rate at any given time, such as the money-market or “cash” rate set by the Reserve Bank of Australia.
A variable rate home loan charges a higher interest rate but gives you the freedom to make extra repayments, draw down a line of credit on your loan or restructure your loan without penalties.
With interest rates decreasing at the end of 2008 and early 2009 in Australia, few Australians were taking on fixed rate home loans: in October 2008 just three per cent of home loan borrowers signed up for a fixed rate home loan, according to finance data released by the Australian Bureau of Statistics.
Yet in March 2008, 23.9 per cent of borrowers were opting for fixed rate home loans.
With the cash rate at its lowest point in more than five years, Australians were choosing variable rate home loans so they wouldn't miss out on cuts in their interest rate and therefore in the loan repayments.
But to be on the safe side, most borrowers choose a split loan, applying a fixed rate to part of their home loan and a variable rate to the rest.
This allows you to sleep soundly at night, knowing you've locked in a fixed rate on one portion of your home loan and your repayments won't increase.
But it also gives you the opportunity to make extra repayments on the variable portion of your loan without incurring penalty fees and taking advantage of interest rate decreases.
So what is the best interest rate you can get on a fixed rate home loan for your property? To find out, you can go to a home loan auction site such as Bid My Loan , where lenders come forward with their best interest rate in an old-fashioned “bidding” war to win your fixed rate home loan.
All you need to do is fill out a simple online application form, which takes about 10 minutes, and lenders will bid for your loan with competing interest rates within 48 hours.
You receive the benefit of seeing the range of rates on offer for your particular financial circumstances, but you won't pay a thing. The only money made at a home loan auction site like Bid My Loan is the once-only “introduction fee” that a lender pays BidMyLoan if you select that particular lender. No other sum of money changes hands.
This is in stark contrast to using a broker to look for the best deal on a fixed rate home loan, where you are forced to pay hidden “trailing commissions” to your broker for the life of your loan. Few people know they are paying this fee on their fixed rate home loan. An auction site like BidMyLoan slashes out this fee.
Does it sound too good to be true? Bid My Loan is the first service provider in Australia to bring you the opportunity of a home loan auction. Log on today to compare and choose rates between a fixed rate home loan and a variable rate home loan.
For more information, go to bidmyloan.com.au or call 1300 BID MY LOAN.
This article was brought to you by BidMyLoan, helping first home buyers, refinancers, or investors to find a better home loan in Australia
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