interest rate options

What’s more important to you – getting the cheapest interest rate now or paying less interest over the term of your loan? You may think that all that matters is what interest rate you get. Don’t worry, we’ll get you an awesome rate! But what’s even more important is how you set up your loan to get rid of it quicker.

You can fix, float, mix the two together and even have several fixed rate loans of varying lengths. The main thing is picking the solution that’s right for you.

Juggling affordability, cost, certainty, risks and flexibility can send most people into a spin. Unless you’re an economist or enjoy studying interest rates for a hobby you’ll need to talk to an expert. But before being able to decide what’s best for you you’ll at least need to know the lingo:

fixed rate

With a fixed rate loan you have the certainty of knowing exactly what your repayments will be for a term from six months to five years. This can help make budgeting easy and take away the worry of increasing interest rates.

You can split your loan over any number of fixed terms.

At the end of the fixed rate term a fixed rate loan automatically switches to a floating rate unless you choose to fix for another term.

During the fixed rate term some extra repayments can be made but if you decide to repay the loan in full or make additional payments over and above what is allowed you need to be aware of early repayment fees.

floating rate

Floating rate loans give you greater flexibility to increase your repayments or repay the loan completely without having to worry about early repayment fees.

The rate can rise or fall which means your regular repayments may change at any time.  Any changes to the floating rate are normally closely tied to the Official Cash Rate.

You can change to a fixed rate loan whenever you choose.

capped rate

The interest rate on a capped loan cannot rise if rates go up but will drop if the floating rate drops below the capped rate.

You can repay as much extra as you like or the whole loan usually without early repayment fees applying.

mixed

By splitting your loan between floating and fixed rates you can have the best of both worlds.

The advantage of being able to pay off the floating rate portion as fast as you like without additional cost and certainty around what your repayments will be. The greater the fixed rate portion the more certainty you will have knowing what your repayments will be. And you can cover your bases by selecting a combination of fixed rate terms.