Fixed Term About to Expire? A Guide to Different Loan Types and Their Benefits

Is your fixed term interest rate about to expire? It can be difficult to know what your refinancing options are in the current climate. We understand that making financial decisions can be daunting, which is why we've taken the guesswork out of refinancing by explaining different loan types and what the pros and cons are for each.

At Finance First, we believe in empowering our clients with the knowledge to make informed decisions. That's why we've put together this guide to help you navigate through the different loan options available to you. Whether you're looking to refinance your home or investment property, we've got you covered.

Fixed-Term loans

A fixed term loan is a popular option for many borrowers as it provides certainty around repayments. With a fixed term loan, your interest rate will remain the same for the term of the loan, which can range from one to five years. This type of loan provides stability and predictability, making it easier for borrowers to budget and plan for the future.

However, fixed-rate loans also come with some drawbacks. The main one is that if interest rates drop during the term of your loan, you'll miss out on your savings. Additionally, if you need to break your fixed-rate loan early, you may be charged break fees, which can be expensive.

Variable-rate loans

Variable-rate loans are another popular option for borrowers. Unlike fixed-rate loans, the interest rate on a variable-rate loan can go up or down depending on market conditions. This means that if interest rates drop, you'll benefit from the savings.

Variable-rate loans are also more flexible than fixed-rate loans. You can usually make extra repayments without penalty, and some loans even come with a redraw facility, which allows you to access any extra funds you've paid towards your loan.

However, variable-rate loans come with some risks. If interest rates rise, your repayments will increase, which can put pressure on your budget. Additionally, if you're not comfortable with the uncertainty that comes with a variable-rate loan, it may not be the best option for you.

Split loans

A split loan is a combination of a fixed-rate and variable-rate loan. With a split loan, you can enjoy the benefits of both types of loans. You can choose to fix a portion of your loan, giving you stability and predictability, while leaving the remaining portion as a variable-rate loan, giving you flexibility.

Split loans can be a great option for borrowers who want to hedge their bets. You can take advantage of any interest rate drops on your variable-rate portion while still enjoying the certainty of your fixed-rate portion. Additionally, you can usually make extra repayments on your variable-rate portion without penalty.

However, split loans can also be more complex than other loan types, and you may be charged additional fees for the split.

Line of credit loans

A line of credit loan is a revolving credit facility that allows you to access funds up to a pre-approved limit. You can use the funds for any purpose, such as renovating your home, purchasing an investment property or funding a business.

Line of credit loans is popular with investors and business owners as they offer flexibility and access to funds when they're needed. You only pay interest on the funds you use, and you can usually make additional repayments without penalty.

However, line of credit loans can also be risky. If you're not disciplined with your spending, you can quickly rack up significant debt. Additionally, line of credit loans usually come with higher interest rates and fees than other loan types.

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