About Interest Rates

Things to Consider About Interest Rates

Not all Australians will be in a position to purchase property outright and the majority will have to rely on borrowing from banks and lenders to buy their first home. There aren’t many institutes that will extend their services for free and that’s where interest rates come in. If you’re curious to learn more about interest rates keep reading, as we’ll introduce you to two of the main types; the fixed payment plan, and the variable alternative.

The concept of fixed interest rates

As the name might suggest, these types of rates are fixed and aren’t subjected to changes as variable options are. They are usually limited in time, typically being available for one, two, or five years as standard. During this time, the individual in charge of repaying their loan won’t have to worry about an increase in rates if they should fluctuate.

This means that if they agree on a repayment rate of 3.5%, they will only be expected to pay this percentage back until the agreement expires. This might sound like a benefit and something that most potential home buyers will sign up for, but in reality it’s as likely for rates to decrease as they are to climb, and so someone with a fixed option won’t benefit from the temporary drop in costs.

How variable rates work

There are several things that can dictate the likelihood of a rate rising or falling. In most instances, these factors relate to the cost of properties, investments, the financial situations of a bank or lender, or even economic attributes. When these events change, they can impact interest rates for the better, or for worse.

A borrower will then be faced with a larger sum to pay back each month, or greeted by a pleasant decrease in rates. The Australian government try to cap these fees to help home owners repay what they owe, so most residents will appreciate the added support afforded by the regions’ particular ruling party that dictate lender fees, although this isn’t always guaranteed.