Tuesday, March 08, 2005

Fixed and Variable - The Split Rate Loan | Australia

Choosing a Split Rate 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 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 stategy.

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.

More information on Split Rate Loans...

Loan Calculators | Australia

Home Loan/Mortgage Calculators

Loan Comparison Calculator -
This calculator will calculate the monthly payment and interest costs for up to four loans (all on one screen) for comparison purposes.

Loan Payment Calculator with Amortization Schedule -
This calculator will compute a loan's payment amount at various payment intervals -- based on the principal amount borrowed, the length of the loan and the annual interest rate.

Mortgage Consolidation & Refinancing Calculator -
This calculator will help you to decide whether or not it would be advantageous for you to refinance either a single mortgage, or the consolidation of a first and second mortgage, into a single mortgage. Not only will this calculator calculate the monthly payment and net interest savings (if applicable), but it will also calculate how many months it will take to break even on the closing costs (if applicable).

Click here for calculators...