Importance of details in financial solutions like mutual funds, home loan or student loans cannot be emphasized enough… The home loan interest rate represents the factor that makes the difference between various loan categories. The repayment schedule and the monthly costs thus depend on this variable, particularly when there are increases in the rates. The home loan interest rate can be fixed, variable or a combination of these two. There are lenders that even provide ‘introductory’ rates that are smaller for the first period of repayment.

The variable home loan interest rate poses no restrictions in case of additional payments, and this is probably the biggest advantage it provides. Plus, the interest rate will drop together with the cash rate. Unfortunately, increases of the interest rate can occur both in relation with a cash rate or independent of it. A fixed interest rate for a determined period of time functions better under the circumstances. At least you know where your finances stand every month and you can make plans.

With a fixed home loan interest rate, you cannot take advantage of the rate decrease, plus, there may be restrictions in case you want to make a repayment in advance. As for the introductory home loan interest rate, lenders keep it very low for one or two years. Unfortunately there are high termination fees and high monthly rates when the introductory period ends.

The presence of the additional fees and the variation in home loan interest rate makes comparisons between lenders difficult. Normally all well-reputed financial institutions have a comparison rate that should be used officially when shopping around for the best offer. For instance, a certain home loan may have an interest rate of 8.0% but a comparison rate of 8.5% due to supplementary charges. For a full picture of the loan offer, it is important to consider the rest of the features too, besides the home loan interest rate.

Do not neglect to carefully check the termination fees, because they can give you a very nasty surprise. A cheap loan will no longer be cheap if you have to pay a huge sum of money just to terminate it sooner. 2% for early termination is quite a lot if you finish before the scheduled term, this means that you’ll make no savings despite the low comparison rate.

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