Loan Blogger

Home Loan Interest Rate

The home loan interest rate represents the factor that makes the difference between various loan categories. 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 variable, fixed or combined. 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, when it comes to interest rate increases, there can be no prediction or relation with the variation of the interest rate. A fixed interest rate for a determined period of time functions better under the circumstances. At least you know where your finances stand every month and you can make plans.

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. The bad part is that such interest rates come with restrictions such as high termination fees, plus, the interest rate may be very high at the end of the introductory period.

The presence of the additional fees and the variation in home loan interest rate makes comparisons between lenders difficult. 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 more complex understanding of the loan offer, it is important to consider the rest of the features too, besides the home loans interest rates.

Furthermore, the termination fees can give you a pretty unpleasant surprise, and it’s better to ask about them in advance. A cheap loan will no longer be cheap if you have to pay a huge sum of money just to terminate it sooner. 2% for early termination represents a lot of money if you want to be rid of the loan repayment sooner.