Here at Squirrel, we don't have a one-size-fits-all solution for your home loan. We realise that the "average homebuyer" isn't exactly the most accurate of measures when it comes to individual needs. Every person's requirements, financial situation and even frame of mind when it comes to their loan is unique - and their loan should be too.
That's why we like to try to structure your loan, as JB puts it, awesomely. It isn't just a question of fixed or variable rate; it's about how much flexibility you want, and how much certainty. Here's what we mean:
So what can we do to give you flexibility with your loan? One way is setting up a revolving credit. This repayment method acts in a similar way to a huge overdraft or transaction account, where you pay your income straight into your loan and draw on it when you need to pay the bills - up to a certain credit limit.Some people want flexibility with their home loan. People who are self-employed, work primarily on commission or otherwise have a volatile income would need to make sure their loan works around that. One month they might be able to make additional repayments, while the rest of the time they might only be able to make the minimums. You'll always want some certainty in regards to being able to make your repayments consistently, but some people might prefer a greater level of flexibility with their loan to take advantage of their highs and mitigate their lows.
The benefits to this, particularly for those on variable income, is that you can use as much of your income as possible to knock down your debt and reduce the interest you are paying. You can also get an account where there are no fixed repayments at all, so if you have a bad week you aren't penalised for it.
You might automatically think the best route is to use a fixed interest rate rather than a floating one, and you would be half correct. The issue is that with a fixed loan, you don't get any benefit at all from a drop in interest rates, and many lenders won't allow you to make extra repayments on your loan - something that could extend the lifetime of your loan beyond what is strictly necessary.Certainty, on the other hand, is something that people who are working with a lower income (or a relatively high debt-to-income) might want to put the emphasis on. Young families with lots of new expenses on the horizon (school and the like) could also benefit from a level of certainty.
Instead, our typical process is to split your loan, so you can have the best of both worlds. In the current low-interest environment, there are plenty of reasons to stay variable, but keeping some of your funds fixed means that you aren't quite so reliant on the whims of the interest rates.
So there you have it: How do you structure your loan? Awesomely! You don't have to pick between flexibility and certainty when you can have both. Keep some of your loan on fixed to retain consistent expenses, and keep the rest on a revolving credit to ensure that your income helps beat down some of your remaining debt.
But, as we said, every person is different. Some might need more certainty than others, while some could do with a high level of flexibility. The key here is to ensure you speak to the right mortgage advisers to make the most of your home loan. Get in touch with Squirrel today to find out how we can help you.