To Fix or Not to Fix

August 12, 2013
Dwayne Brittain

This is a question I am asked often, particularly in the current low rate environment.

My answer is generally the same - It depends on each individuals circumstances.

Currently fixed rates are at historical low levels and as a result I have fielded an increase in Fixed loan enquiries in the past couple of months from our clients.

Fixing home loan rates can be a sound strategy however there are several aspects a borrower should be aware of. These include :

Break costs may be applicable should a fixed rate home loan need to be repaid within the fixed period. This may occur upon a property sale, marriage settlement etc.
Should rates fall further you would not benefit had you fixed your rate.
Very few lenders allow Offset accounts to be applied against Fixed loans.
Most lenders limit the amount of extra repayments you can make to your home loan each year or during the fixed rate period.

Benefits of fixed rate loans include :

Provides cashflow certainty for a fixed period knowing what your repayments would be. Popular with Investors
Should rates rise you benefit from the lower fixed rate.

What's best for you

Whilst the above benefits and pitfalls will determine your best path forward a strategy we use quite often is to split a home loan, part variable rate, part fixed rate. This method retains flexibility whilst adding comfort knowing part of your loan is protected should rates rise within the fixed period.

This structure is particularly popular with First home buyers and conservative borrowers.

Remember, fixing a rate should be done with the view of securing a rate that you are comfortable with, rather than trying to pick the bottom of the market. 

My own Home loan is currently 100% variable and always has been. Am I tempted to fix in the current market ? Yes, now is most tempting.

Feel free to give me a call to discuss your own circumstances, your lenders fixed rates or for the best fixed rates in the market.


Posted in: Interest rates

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