Interest rates might be difficult to wrap your head around, but they can have a significant impact on your finances. Many consumers watch interest rate rises and falls with bated breath, and rightly so - a home loan and mortgage is a long-term commitment. Reducing the interest you pay can save you and your family a lot of money over the life of your loan.
From a purchaser’s point of view, lower interest rates are great. You pay less interest on your loan and this helps you maintain a manageable debt. From the banks’ and financial institutions’ point of view, low interest rates are great for business as they entice customers into taking out a home loan.
You should always take interest rates into account when choosing a home loan or mortgage. Be wary that lenders may attract consumers with low rates for the first term of a loan, but may charge much higher rates thereafter.
When you are taking out a home loan, you can choose from two options: a fixed rate loan, or a variable loan.
Fixing your loan means you agree to pay interest at a set rate. The benefit is that you know exactly how much your repayments will be every time. The risk is that you will become locked into a less-flexible loan and won’t be able to take advantage of falling interest rates
With a variable loan, your repayments will fluctuate depending on the current market interest rate. There are pros and cons on each depending on your circumstances, and you can choose a combination.