A home loan is one of the biggest financial commitments you’ll make. Choosing a fixed, variable or a mix of both home loan interest rates depends on many factors, including your personal and financial circumstances.
This guide explains the benefits of fixed, variable and split rate home loans and provides information for you to consider when working out which home loan option meets your needs.
A fixed rate home loan is a home loan which enables you to fix (or ‘lock’) your interest rate for a set period of time (‘term’), usually between one and five years.
Fixing your interest rate helps you plan ahead with cash-flow certainty, by knowing exactly what your repayments will be and protecting you from interest rate rises.
Break Cost Example:
Say you borrowed $300,000 on the 6 January 2014 with the annual percentage rate fixed for 5 years and, on that date the wholesale market swap rate for 5 years fixed was 3.79%.
Then, on 6th January 2016, you want to repay the fixed rate loan in full, and at that date you have paid off $45,000 of the principal, so the loan balance is $255,000 and you have 3 years of your fixed rate term remaining. The wholesale swap rate for the remaining three years (the remainder of your 5 year fixed rate term) is now 2.18%.
The difference between the 5 years fixed rate at the beginning (3.79%) and for the remaining term of three years (2.18%) is 1.61%.
We therefore apply the rate of 1.61% to your loan balance of $255,000 over a three year remaining term, which equates to $12,312.68. However, the calculation must also reflect the time value of money, by a present day value, resulting in a Break Cost to you of $11,908.68.
A variable rate home loan is a home loan where your interest rate will vary in response to changing market conditions, including but not limited to bank funding costs. The interest rate on a variable loan may go up and down during the variable rate home loan term.
A variable interest rate provides loan features generally not available for fixed rate home loans. This includes the ability to make extra repayments whenever you want and take advantage of an offset account to save you interest.
A split home loan is when you divide your loan into two or more parts. You could split your Australian Unity Bank home loan balance into separate fixed rate and variable rate accounts.
This means you pay fixed interest on the fixed interest rate account balance and variable interest on the variable interest rate account balance.
Splitting a home loan between fixed and variable rates enables you to minimise the risks associated with up or down interest rate movements by locking in a fixed rate for part of your loan, with the remainder of your loan on a variable rate.
Our home loan interest rates vary depending on the:
For our current interest rates and a detailed description of our home loan products visit our website at australianunity.com.au/banking/home-loans
Whether it’s understanding terminology, you’re looking to apply or you have a question about your account we can help you with all your banking questions.
1 During your fixed rate term
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