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Fixed or Variable Home Loan

Many home buyers wonder if they should lock in a fixed interest rate or choose a variable rate.  There are pros and cons of each type of home loan and understanding the rates and potential savings and losses is important.  By doing a bit of research online or by visiting lenders, one can get a better idea about how fixed and variable rates work.  Looking into the history and future predictions about rates can help one make a decision about which type of home loan is right for them. Fixed Rate Investor

Most economists agree that fixed rates are typically chosen by the cautions investor.  This might be the person who has unstable employment, not a lot of savings, or is just leery of changing interest rates.  People who choose fixed rates are often afraid that they won't be able to afford the increase in monthly mortgage repayment amounts should interest rates increase.  These people choose a fixed rate loan so they know exactly what their repayments will be each month.

Variable Rate Investor

People who choose variable interest rates are typically people who have good jobs, steady incomes and are able to ride out increases in interest rates.  These people are able to afford their mortgage repayments each month, even if they increase due to increasing interest rates.  They are often the more long sited of investors, and can see that while rates may increase, there is also a good chance for a decrease and money savings.

There is no right or wrong type of home loan to choose.  However, economists to suggest that the variable loan rate usually has better long term advantages then fixed loans.

Over the next couple of years, economists are predicting that interest rates may climb by 1% or so.  They are anticipating a few small increases this year and perhaps a couple next year.  Then they expect that levels will ease up by the end of 2012.  Rates could drop if people get worried about a stock market crisis or another big down turn in the economy.  In the past, interest rates have peaked around 9%, but economists predict that potential home owners will be cautious about rates that reach the high 8 per cents and therefore will hurt business.  So lenders may cap rates if they begin to rise that high.


For those potential home owners who prefer a fixed rate.  They might choose to fix half or ¾ of their home loan, rather then the whole thing.  Then if the variable part of the loan increases, or drops through the course of the loan the interest should balance out.  It's also possible for potential home owners to choose a short term fixed rate loan, perhaps just three years.  This way they can re-evaluate their loan in the future.

Whichever type of loan a home owner chooses, it is best to be educated.  Knowing what type of loan works for their particular situation or family will ensure confidence in the home loan application process.  Choosing a fixed home loan or a variable home loan does not have to be a daunting task.  Understanding the rates and what is predicted to come for the rates can make the decision an easy one.

Author: Howard Pinkston
Labels: Fixed Home Loan, home loan, Variable Home Loan


