Choosing the Right Home Loan Structure: Fixed, Variable or Split?

By Deltos Finance on September 18, 2023
home loan structure

You’re in the market for a home, yet the choice of home loan structure seems like a tricky decision to make. It’s like being handed a map with three diverging paths: the winding trail of fixed rates, the fluctuating highway of variable rates, and the inviting detour of a split loan. Each path offers distinct experiences and disadvantages, so it’s a choice you can’t afford to make haphazardly. After all, this decision can influence your financial future.

Understanding Home Loan Structures

When financing your dream home, the decision goes beyond saving up for a hefty down payment or finding a property at a price within your budget. You should also understand various home loan structures to pick one that best suits your needs. 

Fixed Rate Charm

Imagine securing your interest rate in a vault protected from market fluctuations. That’s somewhat how fixed-rate home loans work. They offer stability in your monthly repayments, often helping with your budgeting. But remember, while your interest rate remains constant, you may miss out on potential savings if market rates dip.

Is a fixed-rate home loan for you?

Fixed-rate loans are suited for individuals seeking stability and predictability in their mortgage payments. They work well for those who want to safeguard themselves against potential interest rate fluctuations and prefer a consistent monthly payment throughout the fixed term. They are particularly beneficial if you anticipate rising interest rates in the market. Planning to stay in your new residence for years? This structure is often avoided by people thinking about refinancing or selling their property in the short-term because break fees often apply during your fixed period. 

Keep in mind, fixed terms generally range from 1-5 years, with the rate reverting to a variable rate at the end of the fixed term if you do not agree to lock in a new fixed rate. If interest rates have increased significantly over your fixed term, it can be daunting coming out of a low fixed rate and having to move onto a much higher one. 

Variable Rate Flexibility

Variable-rate mortgages, on the other hand, dance to the market’s rhythm, which can lead to both advantages and uncertainties. During low-rate periods, your interest expense is lower, but during hikes, the cost will rise. It’s a dynamic option for those willing to embrace market-driven changes.

Is a variable-rate home loan for you?

If you are comfortable with some level of risk and uncertainty in your mortgage payments, then a variable-rate loan is suitable for you. It’s also ideal if you believe that interest rates might decrease in the future or plan to pay off your mortgage relatively quickly. After all, variable-rate loans often come with features like offset accounts, and the ability to make additional repayments, which can help borrowers reduce interest costs over time. Simply put, this loan may be a good fit for you if you are willing to accept fluctuations in interest rates.

The Balanced Split

Want to seek the best of both worlds? The split loan structure offers a blend of fixed and variable. Part of your loan is fixed, providing stability, while the rest is left variable, allowing you to ride the waves of market fluctuations. It’s a strategic approach that allows borrowers to balance risk and reward.

Is a split home loan for you?

Consider a split loan if you are risk-averse but still want to benefit from potential interest rate drops and the flexibility in loan features available under a variable rate loan. It allows you to hedge your bets by allocating a portion of the loan to a fixed rate and another portion to a variable rate. This strategy can provide a level of financial security while taking advantage of market fluctuations and additional features. 

home loan structure

Factors That Might Influence Your Decision

As you navigate the path to choosing the ideal home loan structure, it’s essential to recognise that several key factors might impact your decision-making process. Here are some of them:

  • Financial Forecast: Consider your financial outlook. Will your income be stable for the next five years or so? Are you comfortable with potential fluctuations? Are you enticed by stability? Reflect on your risk tolerance and long-term plans before choosing between variable-rate, fixed-rate or split home loans. 
  • Interest Rate Outlook: While shopping for a new home, you should also stay up-to-date with any news related to interest rates. If you anticipate a rise in interest rates, then a fixed rate might be a haven. If they’re expected to decrease, a variable mortgage might be alluring. However, keep in mind that fixed rates are set based on the future outlook of the lenders’ economists. It’s best to choose the structure that suits your needs, rather than trying to beat the bank.
  • Flexibility Needs: Variable loans may offer redraw facilities, offset accounts and extra repayment options, granting you financial agility. If you value the power to pay off your mortgage faster, it’s a factor worth considering.
  • Life Stage and Goals: Are you a young professional with dreams of property investment? Are you looking to upsize in the future with a growing family? Or a retiree seeking stability? Your life stage and goals play a vital role in the home loan structure that best aligns with your needs.
  • Consulting the Experts: Just as a home requires a solid foundation, your loan decision necessitates expert guidance. This is where Deltos Finance, Hobart’s revered mortgage broking company, steps in. With years of experience and a commitment to personalised solutions, we can help you navigate the labyrinth of choices, ensuring you get the most suitable home loan in Hobart.

Final Thoughts

Choosing the right home loan structure is akin to crafting a blueprint for your financial future. Whether you’re captivated by the reliability of a fixed rate, the dynamism of a variable rate, or the synergy of a split loan, the decision is pivotal. As you embark on this voyage, trust Deltos Finance to be your compass, guiding you towards the shores of financial success. Our team of experienced mortgage brokers in Hobart is ready to guide you throughout. Remember, your loan structure isn’t just about bricks and mortar — it’s about building a solid foundation for your dreams.

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