01 Dec 2021

What Is the Variable and Fixed Interest Rate?

A homebuyer will find that a variable and fixed interest rate offers its own set of benefits. Here we discuss both.

Fixed rates don’t change over the life of the loan. A lender enters an agreement with a wholesaler. The wholesaler provides a fixed rate for the financing. The lender provides the loan to the home buyer. During the loan’s life, the rate remains fixed. 

If the homebuyer wants to refinance the fixed-rate mortgage, they can. However, they incur a break cost. Sometimes refinancing makes sense despite the penalty.

For variable rate loans, the introductory interest rate is compelling. However, the loan doesn’t receive protection against changes in the economy. The Reserve Bank of Australia can alter interest rates based on the cash rate. The rates can go against the homeowner. 

When this occurs, it’s too late to refinance. But non-bank lenders such as Mortgage House provide tools to offset some of the costs. The trick is to lower the principal amount owed quickly. The smaller the principal, the less the interest rate charge.  

It’s possible to send additional repayments for a variable rate loan. For a fixed-rate mortgage, it’s not an option. The fixed-rate mortgage adheres to the contract strictly. 

Variable and Fixed Interest Rate Conclusion

Before agreeing to the terms of a mortgage in the Australian housing market, understand the difference between the variable and fixed interest rate. In extreme cases, economic circumstances can impact fixed rates. But it’s far less likely. 

To discuss the difference between the two in more detail, contact our Mortgage House loan specialists.

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