November 28, 2016 by Ben Herden
Home loan interest rates are at all-time lows.
And it's not just variable rates that are sitting at low levels. Today, most lenders are offering incredibly sharp fixed rate pricing.
If you are looking for some certainty around your home loan repayments, then a fixed rate home loan (or a split rate mortgage) may be the ideal solution - the best of both worlds
As the name would suggest, a fixed rate home loan iswhen your interest rate is locked in (fixed) for the duration of your preferred fixed period.
Things to consider when choosing a fixed rate home loan.
One pitfall associated with a fixed rate mortgage is the break costs.
There are couple of ways you can be charged break costs, namely:
1. If you switch to a different product and/or lender before your fixed rate home loan term has expired;
2. You make additional home loan repayments in excess of the amount stipulated by your lender (some lenders will let you pay anything you like off a fixed rate loan but the majority have strict limits such as $6,000 or $10,000 per year);
3. You repay your loan in full before the fixed rate term has expired.
4. You default on your mortgage repayments.
Depending on the size of your fixed rate mortgage and how much time you have left in your fixed rate loan term, break costs can be very expensive.
Lenders will typically finance your home loan on the wholesale market with a fixed maturity date.
At the time you switch loans or repay your loan early, your lender will use the Bank Bill Swap Rate (BBSR or B8SW) to calculate your early repayment cost.
As such, break costs will vary from borrower to borrower, Lender to lender, depending on their unique set of circumstances. For this reason, it's important to consult your Lender before you decide to break out of your fixed rate home loan.
Is your head spinning yet? An easier way to think of it (and very very basic!) - the break costs will be the amount of money your lender is losing over the remining term of the fixed rate.
If you are currently in a fixed rate product and would like to break free from the mortgage, Mortgage Choice Gymea can help you identify exactly how much your indiuidual break costs might be. So why not give us a call todayon 02 9525 4544?
