How to Choose between Fixed Rate vs Variable Rate Home Loans

When buying a home you will be faced with several decisions, specifically, whether the loan interest is fixed or variable. There are benefits to both types of mortgages, and the best option depends on your particular situation and financial goals.

Uncertainty in fluctuating interest rates can create problems for both homeowners and financial institutions alike. Fixing your interest rate or allow it to fluctuate with the market can have significant repercussions down the road. In the following article we will explore the major differences between fixed and variable loan structures.

Understanding fixed rate home loans

Fixed rate home loans have an interest rate or a pre-determined period. The homebuyer can know from day one exactly how much interest they are going to pay over time. On the whole, these loans are less flexible – both regarding the interest rate and the repayment structure.

The main benefit of a fixed rate mortgage is the economic certainty. You can budget payments knowing eactly how much interest that will accrue over the term of the loan. However, financial institutions are less likely to allow extra repayments over the term of the loan – which could be a downside further down the road as your financial situation improves.

Fixed rate loans make the most sense when interest rates are currently rising. However, it’s worth noting that rates are almost sure to drop again at some point in the future. With a fixed rate, you won’t be in a position to benefit from these fluctuations.

Variable rate loans follow the market

For those with a slightly greater appetite for risk, variable rate loans put buyers in a position to benefit from future drops in interest rates. If rates are currently high, then a variable rate may appear more attractive – especially for investors who are expecting rates to drop again soon.

While signing up for a variable rate may feel like a risk, research suggests otherwise. Research conducted by Canstar – which compiled mortgage and interest data over the past 20 years – found that using a fixed rate loan to lock in lower interest rates had less than a 50 percent chance of success. More pointedly, the research found that homebuyers who opted for a variable rate fared better over the 20 years in question.

Along those lines, there are certainly situations in which a fixed loan could fare better over the life of a mortgage. However, if you were strictly playing the odds, a variable rate has a better chance of overall success.

ACA Mortgage Solution will secure the best rate for you

Our Mortgage brokers specialise in securing the best home loan packages for our clients. We will help you decide whether a fixed or variable rate is a better option. Contact us today to learn more about the loan options available to you.

What is the difference between an Advertised Rate and a Comparison Rate?

Some home loans come with incredibly low-interest rates. However, after factoring hidden fees and ongoing charges, the interest rate is not as impressive as you initially thought. That’s why it’s mandatory for lenders to publish a comparison rate. In this article, we’re going to look at the comparison rate, and how it relates to the advertised rate.

There’s more to your loan than an interest rate

Your interest rate is the most important indicator of your total loan amount.  Regardless of the purchase price, the higher the interest rate, the more you will pay. For this reason, prospective buyers shop around for the best interest rates, before signing on the dotted line.

However, the interest rate is not the only determining factor in the total cost. Other fees and expenses may be incurred periodically over the life of the mortgage, and these are going to contribute to a higher all-in purchase price.

The problem is that it’s easy to overlook these additional fees when shopping around for a mortgage. In the past, this has led some less-than-scrupulous lenders to hype exceptionally low interest without drawing attention to the extra hidden fees and charges. Buyers who haven’t taken notice of the additional charges could end up getting a significantly less attractive deal on their mortgage than anticipated.

Comparison rates level the playing field

The reality of hidden fees and additional expenses is why comparison rates are available. Today, all Australian lenders are required to display a comparison rate alongside the advertised rate. This comparison rate comes in useful – especially when the advertised rate seems too good to be true – because it takes those extra fees and charges into account. The comparison rate helps borrowers get a better idea of the type of loan they’re considering.

But there are a few things to keep in mind regarding the comparison rate. The first is that – as a point of reference – it may not fully relate to the mortgage you’re considering. First of all, comparison rates usually apply to an example loan of $150,000 over a period of 25 years. You’ll have to read the fine print to be certain of this information.

The reality is that most homebuyers borrow much more than $150,000. You may also be considering a mortgage of a different term length. To that end, the comparison rate should only serve as a point of reference. When consulting this rate, always pause to consider how the example differs from the loan for which you are you are applying.

Published comparison rates have the lenders’ best interests in mind

The law requires that financial institutions publish a comparison interest rate as a form of transparency. It’s a legal requirement and a kind of protection for borrowers. As a leading specialist Sydney Mortgage broker, at ACA Mortgage Solution, we strive to ensure that our clients fully understand the terms and repayment conditions of each possible loan we present. If you need any help interpreting the comparison rate on a particular loan package you’re considering, please don’t hesitate to contact us.

Where are Sydney’s most affordable suburbs?

Sydney top 5 most affordable suburbs.

It’s no secret that Sydney’s housing market is booming. Across Australia, more homes are being built than ever before, and Sydney housing prices were up more than 13 per cent during the first half of the year. Needless to say, those who already have equity in the market are delighted. But for those who are still looking to purchase an affordable home in Sydney, the dynamic is slightly different.

As property prices steadily rise, some would-be buyers are finding themselves priced out of neighbourhoods where they were hoping to live. This has left many unsure of where to focus in their search for a new home in Sydney.

With that in mind, we’re going to shine a spotlight on a few of Sydney’s most affordable suburbs:

  • Newtown

    As a general rule, median property prices are highest in suburbs with the most convenient access to the CBD. This is what makes Newton such a stand-out option. This is the only suburb within 5 km of the city centre where the median price for an apartment is under $700,000 (in this case, around $620,000).

  • Eastlakes

    Located within 10 km of the CBD, Eastlakes is surprisingly affordable. The median home price is around $580,000, which is surprisingly low given Eastlakes’ proximity to the city centre. This is a relatively small suburb, but you can easily spend $100,000 less here than you would on a similar property down the road. Many real estate experts are keeping an eye on Eastlakes, as it’s almost certain to become one of the next major hot spots for investors in the coming years.

  • Croydon Park

    Croydon Park has excellent telecommunications coverage – both in terms of mobile signal and internet. However, it comes up lacking in terms of road congestion and the availability of local retailers. This keeps property prices lower. As a result, the median price for units in Croydon Park is about $435,000 – not bad for a suburb that’s only 12 km from the CBD.

  • Lakemba

    Located along the Bankstown train line, Lakemba and the communities around it represent one of the last great investment opportunities within 20 km of Sydney’s CBD. There are plans to convert this commuter rail to a metro rail, and other infrastructure projects are also on the agenda for this area. The median price for units here is just over $400,000, but this is almost certain to increase once those new investments are under way.

  • Regents Park

    This suburb is notable because homes here are significantly more affordable than those in the surrounding suburbs. This means that there will likely be a ‘catch-up’ period for Regents Park in the near future. For that reason, investors are keeping a close eye on this suburb and snatching up suitable properties when they appear on the market.

Whether you’re a first-time buyer or a seasoned property investor in Sydney, ACA Mortgage Solution can help you with financing the property. Our home loan experts will consult more than 40 mortgage providers and hundreds of home-loan options to find you the best deals. Contact us today to learn more.

How much should I save as a Home Loan Deposit?

ACA Mortgage Solutions regularly consult with prospective home buyers to help find the best home loans that are currently available. In 2014 alone, we settled more than 380 million loans for our clients. Suffice it to say, we’re in an excellent position to help secure the right loan for you.

In our client consultations, we find that certain questions come up over and again.  How big of a property deposit payment should a borrower expect to pay? Buyers understandably want the best possible position both to receive the loan and to make successful repayments.

Several variables determine the amount of deposit you put on a property. However, the conventional wisdom is that 20 percent of the purchase price makes the most sense.

Here are three very important reasons that most financial experts recommend paying one-fifth of the purchase price up front:

  1. Lenders are more likely to approve the loan.

    When it comes to depositing payments, 20 percent is something of a magic number. When a buyer commits to a larger deposit, the loan is considered less of a risk.  The world plunged into a major economic crisis less than a decade ago, precisely because lenders were lax in this regard.  An industry standard of 20 percent makes sense, and it goes a long way toward assuring lenders that you intend to keep up with your repayments. No one wants to lose that deposit amount, after all.

  2. Borrowers enjoy lower interest rates.

    In keeping with the idea of 20 percent as an industry standard, we should also note that lenders are more likely to lower their rates when the buyer deposits this amount down. Even the slightest adjustment in your interest rate can make a major difference over the life of your loan. You can easily save tens of thousands of dollars in interest, by the time the loan is paid in full.

  3. You get instant equity.

    We’re still seeing a major boom in housing markets across much of Australia. The amount of money that you pay as a deposit on a house becomes instant equity. As property prices increase, so does the value of your 20 per cent stake in the house. With prices continuing to rise across Sydney, Melbourne and many other places in Australia, this is an excellent time to invest your saved deposit into a property.

  4. Avoid Paying Lender Mortgage Insurance.

    The amount that you borrow will determine if your loan attracts lenders mortgage insurance LMI.  If you borrow more than 80 percent of a property value, Lenders Mortgage Insurance will be imposed on your loan. You can save yourself thousands of dollars if your deposit amount is 20 percent or more than the purchase price.

If you’re currently in the market for a new home in Australia, ACA Mortgage Solution can help you find the best mortgage deals available. We’ll help you determine what an ideal down payment looks like for you – taking your current financial situation and savings into account. Contact our team today to determine your eligibility for a loan and to secure instant approval.