Home Loan Rate – Australia

What is a fixed rate home loan?

A fixed rate home loan will allow you to lock in an interest rate during the entire fixed term period. A locked interest rate is a fixed interest rate that many bank lenders offer to borrowers for a specified amount of time. You can choose from a 3, 5, 7, 10, 15 or 20 year fixed rate period.

This means that you will be able to know exactly how much your mortgage payments will be for the duration of the fixed rate term. For example, a 10 year fixed term loan will remain at the agreed upon interest rate for the entire 10 years, regardless of variable interest rate fluctuations.

What is a “rate lock”?

Fixed interest rates change very frequently and can change between the time you have applied and the time when your loan settles. A rate lock is the term used to describe when a lender holds a borrower’s current fixed rate quote for a short period of time. Borrowers may request a rate lock for up to 90 days.

If you apply for a fixed rate loan without getting a “rate lock”, there is a chance that you may end up with a rate higher interest than the fixed rate you initially applied to receive. Borrowers usually are required to pay a “rate lock” fee to insure that the interest rate which they applied for has been locked for them. Lenders typically charge a percentage of the loan amount that is borrowed which is usually around 0.15%. Check with your lender because every lender has different policies and rules.

What are the differences between the 3, 5, 7, 10, 15 and 20 year fixed rate loans?

3 Year Fixed Rate Loan
The most popular fixed rate loan is for 3 years. The interest rates are much lower than any other multiple year fixed rate loans, besides the 1 or 2 year loans which have even lower interest rates.

5 Year Fixed Rate Loans
Lenders offer 5 year fixed rate loans at higher interest rates than the 3 year fixed interest rates. The 5 year fixed rate loan is great for borrowers who cannot afford to pay the loan off in 3 years.

7, 10 and 15 Year Fixed Rate Loans
Some lenders may offer fixed rate loans for 7, 10 or 15 years. However, there will be a large break cost to pay off the loans early and break the contract. If you are thinking of getting this kind of loan, you need to be sure that you will be able to keep the property for the length of the fixed rate loan duration.

20 Year Fixed Rate Loans and 30 Year Fixed Rate Loans
The 20 year fixed rate loans and 30 year fixed rate loans are only available to Americans. They are not available in Australia or the UK. These lengthy fixed rate loans do not have any break fees because American borrowers usually have a higher profit margin on their loans.

What are the advantages of a fixed rate loan?

One of the main advantages of having a fixed rate loan is the security of knowing that your interest rate will be locked for the duration of your fixed rate term even if interest rates have increased during that time. This can save you a lot of money in the future.

Some bank lenders that offer fixed rate loans may allow you to make an unlimited number of extra repayments and redraw those extra repayments without incurring any penalties.

What are the disadvantages of a fixed rate loan?

Many lenders who offer a fixed rate mortgages have a limit on the number of extra payments that borrowers can make without the lender charging a penalty fee for the overpayment. Usually these types of loans have a higher upfront cost. They might also restrict the borrower from redrawing extra payments during the fixed loan term. Some lenders may also charge a “break fee” if the borrower terminates the fixed loan term earlier than planned. Break fees can end up costing thousands of dollars. Another disadvantage of a fixed rate loan is that you will not benefit from a lower repayment if interest rates decrease and they do not allow an offset.

What exactly is a break fee?

Lenders who offer fixed rate loans will usually borrow the funds from the money market themselves for around the same amount of time that they give the customer for the fixed rate loan. These lenders “buy” the loan money at wholesale rates and “sell” it to the borrowers at retail rates. The difference between the two loans is the margin of profit gained from the loan.

If a borrower pays off their loan contract early by making extra payments or by paying in full, then the lender will have to lend that money to another borrower or sell it back into the money market. The point of a fixed rate loan is so that the lender can control the repayment amount and number of payments that you have to repay. If you decide to pay off the fixed rate home loan early and the money market’s interest rates have decreased, the lender might lose money. To offset the estimated margin loss, the lender charges their customers break fees for paying off the loan early. However, if there is an increase on the interest rates then the lender may offer the borrower a deal to pay off the loan early. The lender will be able to use the money to lend to another borrower at a higher interest rate, resulting in a higher profit margin for the lender.

Break fees can end up being extremely high. It is highly recommended that you apply for a fixed rate loan for 5 years or less. For example, a $400,000 fixed rate loan for 5 years has a wholesale interest rate of 4.5%. If the borrower pays off the loan in 2 years when the money market’s interest rate is 3%, then the break cost can end up costing $18,000! To calculate this, you take the current loan amount, multiply it by the wholesale rate change, and multiply that by the term remaining on the loan. $400,000 x 1.5% x 3% = $18,000.

Almost everyone will need to take out a loan at some point in his or her life. Whether it be in the form of a home loan, to start a business, or to purchase a vehicle, loans are necessary for many of the major transactions we enter into. Choosing the best loan, however, can be a very tricky process at times. With all of the different terminology involved, the lending process is confusing for a lot of people. However, if you make an effort to understand the various options available, you can save yourself a lot of trouble later on. This article will discuss one of the most popular loan options- the 3 year fixed rate loan.

When looking for a loan, there are several different types you can consider. Some loans are variable rate loans, which means that the interest rate is subject to change over time, while other loans are fixed rate loans. A fixed rate loan is a type of loan in which the interest rate will remain the same for a predetermined period of time. One of the most common fixed rate loans is the 3 year fixed rate loan, though other lengths are also available such a 5 year or 10 year fixed rates.

If you decide to obtain a fixed rate loan, you will probably want to find the lowest rate possible. Since the fixed rates available are constantly changing, the lender that has the cheapest rate today may not be the same one whose rate is cheapest tomorrow. The best plan of action when applying for a 3 year fixed rate loan is to wait until you are ready to go through with the transaction and compare the rates available at that time.

Though the rate percentage is extremely important, there are several other aspects of the loan other than the rate percentage that should be taken into consideration. First of all, one needs to consider the rate lock fee. These fees can be considerably different depending on the lender. Some lending institutions charge on flat fee for the rate lock, while others may charge a given percentage of the loan amount. If your loan will be relatively small, it will probably be in your best interest to find a lender that charges based on percentages. However, borrowers of large loans will benefit more from a flat fee. Finally, there are some lenders that may not charge any rate lock fees, so it is important to compare all of your options before you make a final decision.

Another aspect that needs to be taken into consideration when choosing a bank is the revert rate. Some fixed rate loans revert to the variable rate at the completion of the fixed rate period with no discount whatsoever. However, it is possible to find fixed rate loans that revert to a rate that will likely be lower than the standard variable rate.

Finally, when you are considering different lenders, you need to pay attention to the flexibility allowed. A lot of fixed rate loans will not allow you to make any extra repayments for the duration of the fixed rate period. However, some lenders will allow the borrower to make repayments during this time. This extra flexibility can be very beneficial should you feel the need to pay the loan off early. Believe it or not, some lenders allow you to make extra repayments on a fixed rate loan.

The 3 year fixed rate loan is the most popular among fixed rate loans because many of these types of agreements will penalize the borrower should he or she decide to make extra repayments or exit the loan early. In fact, many fixed rate loans require the borrower to pay something called a “break cost” if they end the loan early. A break cost can be very expensive. For this reason, 3 year loans are often preferred because the time is long enough to make the fixed rate worthwhile, but not so long that the borrower would feel the need to exit early. That being said, it is very important to understand the break costs you will incur should you choose to exit the fixed rate loan before its predetermined end date, so be sure to factor these costs into your comparison as well.

In order to get the best of both worlds, many clients choose to take out a split loans or mortgages in which part of the loan is a fixed rate and the other portion is a variable rate. This option allows the client the security of a fixed rate on one portion of the loan while allowing him or her to make extra repayments on the variable rate portion if he or she so desires.

It should be noted that taking out a 3 year fixed rate loan in the last 20 years has actually been more expensive than a standard variable rate loan in the end due to the trends of the variable rate. For this reason, it is very important to compare your options carefully before signing any type of loan agreement so you don’t lose in the long run.

A loan is a form of debt incurred when someone, called a lender, lends an amount of money, called the principal, to another person, called the borrower. The borrower is then expected to repay an equal or greater amount of money at a later date. The money is usually expected to be repayed in regular payments of the same amount. 

In the majority of cases, the lender provides the loan at an additional cost, called interest. Without interest, there would be no financial incentive for the lender to provide the loan. In legal loans, all of these obligations are regulated by a contract. Most legal loans, such as mortgages, are obtained from financial institutions such as a bank. 

Loans are often used in major transactions such as home purchases and vehicle purchases since most buyers cannot afford to pay large amounts of money out of pocket. Often, the borrower will be required to put down a deposit on the loan in order to secure it. In cases where the loan to value ratio is high, the lender may also ask that the borrower pay mortgage insurance on the loan. 

There are several different types of loans available including standard variable loans, basic variable loans, fixed rate loans, line of credit loans, combination loans, discount variable loans, lo doc loans, and non-conforming loans. These different types of loans are detailed below. 

Standard variable loan

A standard variable home loan is a loan in which the interest rate changes throughout the duration of the loan. These types of loans may be combined with a package that allows them to eligible for a lower rate. A standard variable loan will also include a mortgage offset account. 

Basic variable loan

A basic variable loan is also a loan in which the interest rate can change throughout the duration of the loan. The interest rate for this type of loan will be similar to that of a standard variable loan, but will usually have a packaged loan discount. Basic variable loans typically have less features than the standard variable loan. 

Fixed rate loan

A fixed rate loan is a loan in which the interest rate is fixed over a set period of time. These loans usually penalize the borrower should they choose to exit the loan before it is set to end. The borrower will have to pay a “break cost,” which can be very expensive. If there is any chance that the borrower will repay the loan early, he or she should not take a fixed rate loan. 

Line of credit loan

A line of credit loan is a loan without a set amount. Instead, the borrower can draw any amount up to the credit limit at any time. There are no set repayments, and the loan will have a variable rate. Payments can be made toward the balance at any time. Some lenders ask that the borrower make at least one repayment each month, while others don’t ask for any payments until the credit limit has been reached. The required payment in the first case must usually at least equal the interest accrued in the previous month. 

Combination loan

A combination loan is an option offered by many lenders in which the borrower receives a professional package. The package includes multiple fixed rate loans, variable rate loans, and line of credit loans. The borrower will then be asked to pay an annual fee for the package. A common type of combination loan involves the borrower receiving a portion of a loan as a variable rate and the remainder as a fixed rate. This offers the borrower the benefit of not having to worry about rate increases on the fixed rate portion while still being able to make extra repayments on the variable rate loan without penalty. 

Discount variable loan

A discount variable loan is a variable rate loan that includes a lower interest rate. This discount will typically be more than the discount received with a packaged loan. The discount is typically valid for one year, so it is possible that this type of loan will work out to be more expensive in most cases. 

Lo Doc loan

A lo doc loan, or low documentation loan, is a loan in which the borrower is not required to provide tax returns or financial reports. This type of loan is most often used by borrowers that are self-employed and don’t have access to such paperwork. Most lenders do require some proof of income, however, which can be in the form of bank statements. 

Non-conforming loan

A non-conforming loan is a loan that does not require the borrower to meet the standard lending criteria. This type of loan is not usually available from mainstream lending institutions. A non-conforming loan is typically given to borrowers with credit problems or a history of late or missed repayments.

 Get more information about home loan types.

“Capped”, it usually means that there is a limit or there is a certain boundary that cannot be crossed.   A capped loan similarly would mean that the interest rates have a limit set to them, and cannot go above a certain point.  This is of course limited to a certain period, which may be a number of years.

Due to the fact that a loan is capped, this simply means that no matter how high the interest rate goes up, the boundary is what would have been agreed upon in the capped loan contract.  However, when interest rates go down, the interest you pay can also go down.  This is because the cap is only applicable upwards and not downwards.

Currently, most capped home loans on offer have a 7.5% cap until 2012.  Any interest above 7.5% would not be allowable.    The lowest capped loan on offer is set at 7.49%, so one has to decide based on the product features which capped rate loan would be most suitable. The expert consensus, however, seems to be that interest rates will stay low for the next few years. These rates will then slowly go up once again as the effect of the subprime mortgage crisis in the United States slowly settles, and the real estate market begins to recover.

People who are on the fence can therefore, take a chance with this loan product.  It has the flexibility of a variable rate loan, and the cap is akin to a fixed rate loan where the rates are inflexible.

With the help of the experts on home loans, it would be much easier to gain access to a capped home loan.  They can also advise you if getting such a loan would be wise, and even offer different products which may compare in price to such a loan.  So do not hesitate to try and benefit from various home loan products, as they could save you a lot of time and effort.

To fix or not to fix your loan is a common question.  Another common question is for how long you should fix your loan rate. This can last from a few years to several years.  Deciding on whether or not to fix is also essential as this can have great impact on the interest rate you will be paying and your total expenses.

Fixing the rate of your loan is a good idea, especially if rates are on the rise, and are becoming unaffordable.  This is especially true if the trends show that there is little chance of the rates going down once again.  Another good time to fix rates is when the rates are at an all time low.  With rates set so low, paying that rate of interest for many years will ultimately save you a lot of money in the end.

The common length of time that rates are fixed is usually for a 3 year period.  However, this can be fixed for a longer or shorter period depending on the financial environment.  After the period lapses, the loan is usually transformed into a standard, variable rate loan.

For others who are unsure whether or not the interest rate is at a good level, in order to get the best of both worlds, a portion of the loan will be fixed, while another portion will be variable and will move up or down depending on the prevailing interests that banks and lenders charge.

The home loan experts have the expertise in dealing with such situations.  They can help you decide on whether or not a fixed rate loan would be suitable to your needs.  They can also give you different options for your home loan.  They could suggest different types of loans, or suggest how long you should fix your loan for.  They will ensure that you get a good deal especially on a 3 year fixed rate home loan