Currently the fixed interest rate on home loans is lower than the variable interest rate. It makes sense then to take out the fixed interest rate doesn't it?
Well the answer isn't quite that simple.
When you first take out the loan it may make sense. People won't have much in the way of savings. However it really depends on how much people have left in savings. Variable rate loans often include a nice feature called a mortgage offset account. When you put money into the mortgage offset account the interest on your mortgage is calculated on the balance of the mortgage less the amount of money in the offset account. The best part is it's tax free. If you put the same money in an interest bearing account you'd get taxed on any interest earned every year plus you have to pay the Medicare Levy. Not so with a mortgage offset account.
So the answer to this question really is how much money do you need in your mortgage offset account to break even. This isn't a simple calculation so I decided to write the Fixed vs Variable Loans calculator to provide the answer.
It may sound strange, but if you have some savings, the variable interest rate loan may be the better option even thought the rate is higher. Give the calculator a go and see what is best for you.
Kelvin Eldridge
www.FixedvsVariableLoans.com.au
Well the answer isn't quite that simple.
When you first take out the loan it may make sense. People won't have much in the way of savings. However it really depends on how much people have left in savings. Variable rate loans often include a nice feature called a mortgage offset account. When you put money into the mortgage offset account the interest on your mortgage is calculated on the balance of the mortgage less the amount of money in the offset account. The best part is it's tax free. If you put the same money in an interest bearing account you'd get taxed on any interest earned every year plus you have to pay the Medicare Levy. Not so with a mortgage offset account.
So the answer to this question really is how much money do you need in your mortgage offset account to break even. This isn't a simple calculation so I decided to write the Fixed vs Variable Loans calculator to provide the answer.
It may sound strange, but if you have some savings, the variable interest rate loan may be the better option even thought the rate is higher. Give the calculator a go and see what is best for you.
Kelvin Eldridge
www.FixedvsVariableLoans.com.au
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