Theme: Home Loans Interest Rates
July 27, 2010The biggest factor that makes the difference between home loan categories and offers is the home loan interest rat. This element alone influences the monthly costs in the repayment schedule, which means that the tiniest rise in the interest rate will take more money out of your bank account. The home loan interest rate can be fixed, variable or a combination of these two. There are lenders that even provide ‘introductory’ rates that are smaller for the first period of repayment.
The variable home loan interest rate poses no restrictions in case of additional payments, and this is probably the biggest advantage it provides. Plus, the interest rate will drop together with the cash rate. Unfortunately, increases of the interest rate can occur both in relation with a cash rate or independent of it. The more rewarding situation from this perspective is the fixed interest rate, which remains locked at the same level for up to five years. At least you know where your finances stand every month and you can make plans.
With a fixed home loan interest rate, you cannot take advantage of the rate decrease, plus, there may be restrictions in case you want to make a repayment in advance. As for the introductory home loan interest rate, lenders keep it very low for one or two years. The bad part is that such interest rates come with restrictions such as high termination fees, plus, the interest rate may be very high at the end of the introductory period.
The presence of the additional fees and the variation in home loan interest rate makes comparisons between lenders difficult. Therefore, lenders must provide a ‘comparison rate’ which represents the interest rate together with all the fees and charges. For example, a certain home loan may have an interest rate of 8.0% but a comparison rate of 8.5% due to supplementary charges. For a more complex understanding of the loan offer, do consider the rest of the features, besides the home loans interest rates.
Furthermore, the termination fees can give you a pretty unpleasant surprise, and it’s better to ask about them in advance. If you have to pay a lot of money for terminating the loan sooner, then the initial deal is no longer that advantageous. 2% for early termination is quite a lot if you finish before the scheduled term, this means that you’ll make no savings despite the low comparison rate.