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Factors to Consider in Choosing a Split Rate Loan (Combination Fixed and Variable)

Choosing a Split Rate Loan?



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Information on the different Types of Home Loan

If you are planning to buy a home you have probably started researching the various types of home finance available. The two most common types of mortgage loans are fixed rate loans and variable rate loans. Variable rate loans are the most common in Australia but there is considerable interest in fixed loans now that rates are increasing again. We have a Variable vs Fixed Rate Mortgage Calculator to compare costs between the two types. A third alternative is the Split Loan which is a combination of both types.

Rate rises by the Reserve Bank of Australia have also got existing home owners with variable rate loans thinking of refinancing into a fixed rate loan.

Variable rate loans have been very popular in the low-interest rate environment of the last few years. The flexible terms have given borrowers an opportunity to make voluntary repayments and reduce the principal owed. Now however they are looking at the security of knowing exactly what their repayments will be under a fixed rate loan.

An obvious alternative is the split rate loan. Borrowers have the security of knowing that the fixed portion provides partial protection against rising rates while the variable portion means savings if rates fall. This is a compromise solution that helps provide a safety net for those whose budget may be tight.

Remember that there are usually limits on voluntary repayments on fixed rate loans, unlike variable loans. Check the loan conditions with your mortgage broker and vary the split according to your risk strategy.

If you can make voluntary repayments by depositing tax returns etc then you will provide yourself with an extra margin of safety if rates continue to increase. Decreasing the principal now is the best protection strategy of all.

If you are thinking about refinancing or buying a house and are considering a split loan, discuss your options with a mortgage professional.

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Thank you for visiting our Web-site. We hope the overview on split rate loans has proved useful.

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