Reviewing your loan structure in a changing rate environment
When interest rates start moving, it's natural to wonder whether your current loan structure is still the right fit. The ideal type of loan for you in any interest rate environment is one that best suits your budget, income and lifestyle goals.
Here’s how the different types work, and what to consider for your needs.
1. Locking in a fixed rate loan
In a fluctuating rate environment, some borrowers prefer to lock in a fixed rate for a period of one to five years. This means that your interest rates won’t change during this time.
This can make budgeting simpler, especially if you’re managing other rising costs.
However, it is important to be aware that fixed term loans come with some limits, for example, how much extra you can repay off the loan during the fixed rate period.
Also, fixed rate loans are locked into a contract. There can be fees involved if you wish to break the loan for any reason, such as if you refinance or sell your property.
For some, the trade-off is worth it for repayment certainty. For others, flexibility may be more important.
2. Opting for a variable rate loan
Variable interest rates can go up or down and CommBank will advise of any changes to your variable home loan rate via the CommBank website.
CommBank offers a variety of loan options and depending on the conditions of the loan, you may be able to do things like:
- Make unlimited extra repayments, to help you pay your home off as quickly as possible.
- Link to an offset account, depositing your salary and savings into an Everyday Offset Account can help to reduce the amount of interest paid on your home loan and help you pay off your loan sooner.
- Change your loan or refinance at any time without any break fees or financial penalties.
While a variable rate loan can be more flexible than a fixed rate one, there are potential downsides. If your lender increases rates, your mortgage repayments will increase, too. Consider how your budget could be impacted if your mortgage increased by $100 per month, $500 per month or even more. Planning for these scenarios can provide greater peace of mind even when rates are steady.
3. Splitting the difference
Alternatively, there is the option of a split loan, where a portion of your home loan is fixed and the remainder is variable. This can be the best of both worlds, offering both some degree of certainty but also the freedom to repay faster or redraw from the variable portion.
Choosing between a fixed, variable or split loan is an important decision and a great opportunity to set yourself up with a structure that supports your financial goals and budgeting preferences. Rather than trying to predict where rates might go, it’s about selecting an option that gives you the right balance of certainty and flexibility for your situation.
You can visit the CommBank website for the latest fixed and variable interest rates or if you are interested in more information you can always contact a CommBank Home Lending Specialist.
If you’re feeling stretched
If repayments are starting to feel difficult to manage, you’re not alone. Many Australians are adjusting to higher costs in many areas of life such as groceries and household bills, and home loan changes can add pressure.
The earlier you reach out, the more options that may be available.
Depending on your situation, we may be able to discuss options such as:
- Temporary repayment adjustments
- Changing your repayment frequency
- Reviewing your loan structure to see if it still suits your needs
Every situation is different. Our team is here to listen and work with you to find a practical solution that helps you move forward with confidence. You can also find more information on financial support here.
You don’t need to have all the answers before getting in touch, a conversation can be a helpful first step.
