Should I fix my rate?

January 03, 2017
Shae Aiello

There has been a lot of talk lately about what is happening in the market, specifically in regards to fixed interest rates.

Up until a few weeks ago we had seen some of the lowest fixed rates in my experience (and I’ve been a broker since 2004!), and I’m pretty sure even in the history of our country. I have seen some of our lenders even go as low as 3.69% for three years. Which led some of my clients, after doing a free home loan health check with me, to decide to fix all or some of their home loan at those rates.

Since then, we have seen lenders begin to put fixed rates up.

Fixed money and variable money come from different places, at different prices, so when rates go up, it can be for a variety of reasons. For example, lenders may buy a tranche of money for a one year rate and they’ll pay a particular price, add a margin to it and then sell it to customers. They’ll then get hold of a separate tranche of money for a two year rate, at a different price, and so on, which is why their rates are different depending on how long you want to fix for. It also plays into why they need to charge you a fixed rate break cost if you pay out the fixed rate loan early. They’re paying a particular cost for it and they’re charging you a particular margin, and they need to somehow make that margin even if you pay out the loan early.

As of right now fixed rates have gone up, but if you can’t see much variable rate movement in the near future, then they’re still a very good deal. They’re a little higher than they were a while ago, but that’s comparing rates to the the greatest deals in the history of the country - so comparatively, current fixed rates are still really cheap. Generally speaking, for most of the scenarios I’ve been looking at over the last few weeks, fixed rates are a slightly cheaper option than variable. So I certainly wouldn’t rule out fixing right now, just because rates have gone up a little bit.

The other thing that is starting to happen is lenders putting their variable rates up as well. Not for the same reason as fixed rates rising, but because their cost of variable funding has changed and they are jostling for market position with each other as well.

​Although, one lender that's going against the trend is Mortgage Choice Home Loans, which dropped variable rates recently. The Mortgage Choice Home Loans offering is absolutely one to consider:

  • Owner Occupied Plus Home Loans, packaged with an offset and credit card, priced from as low as 3.86% pa
  • Investment Basic Home Loans start at 3.99% pa, which is extremely competitive when comparing against other lenders who have recently increased their rates.
  • Not only are the rates super sharp, there are still no ongoing fees on any Mortgage Choice Home Loans home loan.

I think if you already have a loan, then now would be a good time to look at fixing. If you don’t have a loan, but you’re thinking of buying a house, then that is a separate conversation, because the most important thing from my perspective is which lender is going to be happy to lend you the money in the first place. You may be in a situation where any anyone will be happy to lend to you, or you may be in a situation where there’s only one lender who will even consider it. In which case you are limited to picking from the products available from them. In this case, your decision may then be based on whether their fixed rates are competitive enough. And that is the conversation we get into when I’m talking with my clients. First of all, what are the possible solutions, then from there what are the best deals. What the best deals are depends on what the best products are for you. For example, if you want an offset account you may not be able to fix your whole loan, but you may be able to fix some of it and so on. It can become pretty complicated, but that is one of the many benefits of using an experienced broker - we help you make the best decision for your own unique financial situation.

If you’d like to make an appointment to discuss whether you should fix all or some of your home loan, then contact me on 9309 4780 or tim.kerin@mortgagechoice.com.au today!

 

Some related articles that you may be interested in reading:
What is the difference between a mortgage and a home loan?
How much can I really borrow for my new home?
I'm ready to make an offer on a property. What do I do next?
Buy where you can afford, rent where you want to live...

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