What is a Floating loan and it's advantages and disadvantages
What is a Floating Loan?
A floating loan, also known as a variable rate loan or adjustable rate loan, is a type of loan where the interest rate can fluctuate over the life of the loan based on changes in a benchmark rate (Official Cash Rate) set by the Reserve Bank of New Zealand.
Advantages of a floating loan over a fixed loan include:
- Flexibility: The interest rate on a floating loan can change based on the market conditions, allowing borrowers to take advantage of lower rates if they occur.
- Good for short term lending if users of a floating rate are aware of money coming their way. E.g., Inheritance, sale proceeds from an existing property or asset.
Disadvantages of a floating loan over a fixed loan include:
- Interest rate risk: The interest rate on a floating loan can increase, potentially resulting in higher monthly payments. This can be a significant risk for borrowers, especially if interest rates rise significantly.
- Budgeting and financial planning: Uncertainty over future interest rate changes can make budgeting and long-term financial planning more difficult for borrowers.
- Risk of rate hikes: if the market interest rate goes up the borrowers would have to pay more interest which can be a burden on the borrowers.
If you're looking to explore your mortgage options, please don't hesitate to contact us. Our team of experts will work with you to understand your financial goals and find the best solution for you.
We'll guide you through the process and help you understand the pros and cons of different types of mortgages, so that you can make an informed decision. Contact us today to schedule a consultation and get started on your path to homeownership, or restructure an existing loan.
Advanced Mortgage Solutions
P: 0508 466 356
Scott is wonderful to work with, which made the hole process so much easier and stress free. Highly qualified highly recommended. In there for the customersKarla Botting - 06 December 2023
Scott was fantastic to work with, honest and hard working, went the extra mile on everything, explained the nitty gritty jargon into easy to understand. Got us a great deal on our mortgage, put us with the right people. All in all 6 stars, if your buying then definitely call Scott at AMS!!Hamish Neilson - 06 December 2023
I used Scott at Advanced Mortgage Solutions for my first home purchase and am currently repurchasing a property through him again. Has been absolutely amazing and made the process extremely easy. Would recommend to anyone looking for a mortgage broker in Christchurch!Stacy Kamo - 29 November 2023
Scott and the team at Advanced Mortgage Solutions are great! Very knowledgeable and they make the house buying process very simple and easy to understand. Cannot recommend them enough!Scott Harris - 20 November 2023
Friendly and personalized service. Always happy to answer all my questions and love getting to see Gus when we meet in-person.Lisa French - 20 November 2023