Home Loan Interest Rate
The biggest factor that makes the difference between home loan categories and offers is the home loan interest rat. The repayment schedule and the monthly costs thus depend on this variable, particularly when there are increases in the rates. 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, if the cash rate drops, so will the interest 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. You thus have the chance to better plan your finances because you know exactly what you are going to pay every month.
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. The introductory home loan interest rate is very advantageous for the first one or two years of the repayment schedule, but then it gets much higher. Unfortunately there are high termination fees and high monthly rates when the introductory period ends.
Mention must be made that any comparison between loan offers is difficult or almost impossible given the difference in the home loan interest rate and the existence or absence of additional fees. 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 full picture of the loan offer, it is important to consider the rest of the features too, besides the home loan interest rate.
Do not neglect to carefully check the termination fees, because they can give you a very nasty surprise. 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 want to be rid of the loan repayment sooner.
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