27 March 2018 Which home loan is right for you It can be difficult to know what loan structure is right for you. Here's a rundown of various loan types. Fixed rate Planning: A fixed interest rate allows you to plan for the future with the knowledge that you will pay the same amount each month for the length of the fixed rate period, even if interest rates rise. In terms of career, your lifestyle decisions and savings plan, knowing what you’re going to be forking out can be a big comfort. However, you do need to be mindful of the restrictions of fixed rate loans. Fees: You need to be aware that if you want to make prepayments larger than $30,000 with your RAMS home loan, you may be required to pay break costs, which can be considerable. Rate drops: Remember while fixed rates protect you when rates rise, if you have a fixed rate and rates drop, you miss out on the advantage of that rate movement. Variable rate Extra repayments: One benefit of having a variable interest rate is being able to take advantage of more prosperous times in your life to make a financial dent in your mortgage. Sudden windfalls, inheritances or tax returns can be funnelled into the mortgage, allowing you to make greater headway than with a fixed rate mortgage. When interest rates drop, it can make a big difference in your household’s monthly budget if all or part of your mortgage rate is variable – especially if you maintain the same repayment amount even after the reduction is introduced. Rate rises: You also need to be prepared if the market changes and interest rates start to increase. It makes good financial sense to plan and budget for potential interest rate rises and try to get ahead on home loan repayments whilst rates are lower. Split the difference Another option might be a part fixed, part variable loan structure to leverage the advantages of each. In splitting, the percentage allocated to a variable interest rate should be based on what you’d comfortably be able to afford should interest rates rise. Secondly, consider your plans for the next three to five years. Think about the amount you wish to pay back in this time frame (in addition to the minimum repayments of your mortgage) and make this amount variable. Offset accounts* An offset account is attached to your home loan and works just like a regular bank account, as you can deposit your salary into it and withdraw money for everyday purchases using a debit card, such as the RAMS’ Tap and Pay eftpos card. An offset account is offset against your home loan balance, reducing the amount you pay interest on. Let’s say you have a $400,000 home loan balance and $50,000 in an offset account, in this instance you would only pay interest on $350,000. Many home owners opt for an offset account over a savings account, as interest rates attached to home loans are generally higher. Things you should know: Credit criteria, fees and charges apply. *Not available to companies or trusts.