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Fixed Or Variable Rates for Home Loans?

Posted on the 16 April 2015 by Sgyounginvestment

In recent months, there has been a lot of news on interest rates and indeed the rates are changing at a much faster pace than before. Interest rates on the international level are all changing. US interest rates are changing, Singapore's interest rates are changing too.

With the ongoing changes, now it's a good time to look at the benefits or disadvantages of both fixed rates and variable rates for our loans.Most of us will be taking loans when we buy a house. When interest rates change, we will get affected, big or small, depending on the home loan packages we take.

Fixed or Variable Rates for Home Loans?


In Singapore, there are basically 2 typical types of home loan packages offered by the banks. The first is short term fixed interest rates and the second is variable interest rates or SIBOR dependant rates. Interest rates are generally low in Singapore so a lot of people go for variable rates packages. But we have to take note that if interest rates rise, the monthly instalment we pay will go up as well.

If you own properties or is planning to buy properties in countries like Australia, the situation is different. Some of the fixed rate packages in Australia actually have lower rates as compared to the variable rate packages for a short period of time. It is important to do our own research to get the best deals when buying properties in Singapore or Australia. Newcastle Permanent is an independent, mutual, retail financial service provider which provides home loan packages in Australia.

Let's take a look at some of the benefits and disadvantages of fixed vs variable rates.

Fixed Rate Home Loan

A fixed rate home loan can provide you a sense of financial certainty because the interest rates and repayments will remain the same for the set period of time of your choosing.

Benefits:
  • Consistent monthly payments
  • Best for long term loan payments
  • For home-owners who expects interests rates will go up and would want to lock in a lower interest rates now
  • Protection from interest rate hikes

Disadvantages:
  • Monthly payments are higher than Variable rates
  • Home-owners cannot take advantage of any interest rate decreases that might occur during the life of the loan
  • Most plans incur a fee when breaking out of a fixed rate before end of the loan term. This happens when there is transfer of home ownership due to sale or refinancing over to another lender.

With variable rate home loan, market forces and the economic climate affect the amount of interest you pay for your mortgages.

  • Monthly payments are cheaper than fixed rate loans
  • Best for those who plan to keep the loan for a short period of time
  • No protection against interest rate changes
  • Monthly payments will fluctuate in line with market interest rates

$500,000 loan on variable rate

*This is a sponsored post by Newcastle Permanent


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