... some reasons to CHOOSE variable…
Here is another reason that is rarely, if ever, spoken of.
Most variable loans are now written as a “standard” rate less a discount. The size of the discount is negotiated at “point of sale” and this discount stays with you for the “life of the loan”.
Fixed rates are just that – a fixed rate .. but .. When you come out of your chosen fixed rate period, what happens then?
At the moment in a highly competitive market banks are offering very generous discounts on variable loans.
Let’s say you opt for a 50% variable rate / 50% fixed rate split loan and you negotiate a very generous discount on the variable component.
In three years’ time when your fixed rate loan comes out of fixed, perhaps in a less competitive environment when discounts aren’t as generous, you decide to go variable. Will you get the generous discount from the past applied or the less generous one from the present?
I can say categorically as a broker that no matter what you may be “told”, you will not get an undertaking in writing about the discount that will apply in the future, and if it’s not in writing it’s not real.
Variable loans are often looked upon as taking a gamble on the market and Fixed Loans as a stable “safe” choice.
Upon closer inspection however, it’s actually quite the opposite. Personally, I see more “stability” in knowing what percentage discount would be applied, written into the loan contract, servicing the entire life of the loan. I wouldn’t take the “gamble” of only knowing my rate commitments for period of time much smaller than the life of the loan.
As always call or email me anytime - It's what i'm here for.
Alan Heath