Lenders are fiercely competing with each other to attract and retain customers, which is great news for borrowers. Over the past few months we have seen many lenders heavily discount their fixed rates, bringing fixed rates to their lowest level since 2009. This is encouraging many locals to consider fixing all or part of their home loan. It is really important to weigh up this decision carefully as fixed loans and variable loans both have pros and cons, which are based around the loan flexibility, features and costs.
Put simply, variable rate loans tend to be more flexible in nature (with features as well as the interest rate) and you can take advantage of falls in market rates. But when rates rise so to do your repayments.
Fixed rate loans provide peace of mind, keeping repayments stable over a fixed term. However, there may be fewer features on offer and it is important to remember that once you are locked into a fixed loan, you may incur break costs and a switch fee to move away from that loan type. The cost involved with breaking a fixed rate term can be quite high depending on when you fixed, how long you fixed for and what the interest rate was at the time compared to where market rates sit now.
Those who want to hedge their bets and take advantages of the pros of each rate type often choose to split their loan amounts between fixed and variable. When making your decision, the key is to educate yourself as much as possible by researching your options, taking into considerations the wide range of loans and lenders available, or ask someone with industry experience to do all the hard work for you…
Dane Heinrich, Mortgage Broker at Mortgage Choice Sale. Ph: 0438 626 885 or visit the office at 2B/197 York St, Sale.