Explaining fixed and variable home loans

Press the play button to listen.

Transcript

Announcer: 96.5, we’re your family’s number one. Now it’s that time of the week, we’ve got Helen Baker, our finance expert on the line. Evening, Helen.

Helen: Evening, how’s it going?

Announcer: Evening, thank you! Now we’re doing the whole series on home loans and things like that. I actually went to an open home on the weekend, just sort of a little bit of a dream and you are bombarded with mortgage information and it is all gobbledygook to me so can you explain the difference between the home loans, the fixed term, the variables? Oh my goodness, it just makes my brain explode.

Helen: Yes, there’s a lot of pros and cons to whether you want to do a fixed loan or a variable and look, there’s no right or wrong answer, it can always be different. But just to highlight a couple of pros. So if it’s a fixed loan, and at the moment, the home loan interest rates, you can get even up to around 5% or just under 5% so the benefit being that if it’s fixed, you know exactly what the repayment will be ongoing going forward. So some people like that certainty and control in managing their budgets or spending and investment plans, as we call them.

The con from a fixed loan perspective is if you wanted to sell that home or you had to sell that home or you needed to change something, then you can end up with some enormous fees that can undo all of the benefits that you were doing and saving money going forward. So they’re quite fierce some of those penalties so you’ve got to be careful about that.

The other one to check is whether – assume you get a bonus, or a lump sum comes your way, and you want to target that home loan – sometimes those fixed loans limit how much extra you can put on each year. So that can sort of tie you up a little bit as well, but there’s pros and cons there.

From the variable side of things, obviously if interest rates increase, they’re going to increase and the problem for that then is more commitment financially. So it’s good to seek advice from someone, probably a mortgage broker who can tell you all the ins and outs and the right numbers before you make a commitment.

Announcer: Oh Helen, you’re just a bit of an eye-opener and every week I’m always writing things down. Thank you for explaining that to me because believe me, it’s all gobbledygook to me.

Helen: Happy to help.

Announcer: Brilliant. Now she will be back next week but if you want to find out more about our lovely Helen, go to Helen Baker at OnYourOwnTwoFeet.com.au.