Friday, April 01, 2005

Australian Mortgage Choices

How to Choose a Home Loan

There are basically four types of mortgage choices popular in Australia. These are fixed interest rate, standard variable rate, basic variable rate, and split rate home loans.

Fixed Interest Rate

A fixed interest rate mortgage has a fixed interest rate for a set term which is usually one to five years. When the term expires the borrower can generally roll over the loan into new fixed term loan at the current interest rate or convert to a variable rate loan. These mortgages are very popular especially when interest rates are rising because borrowers can lock into a rate. This provides peace of mind and stability. The problem is, this can also be a bad thing if interest rates fall. For example, if the fixed rate is 8% and interest rates fall to 6% the borrower is unable to take advantage of the lower interest rates and associated lower repayments. Fixed interest rate loans are typically more expensive than variable rate. The trade-off is for the security and stability provided by the fixed rate.

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