Should YOU Fix Your Home Loan?

Over the last week or so, lenders have begun to raise their interest rates for investors, which has driven many people to ask if it’s time to fix in their home loan.

What’s the benefit?

Fixing your home loan allows you to protect yourself against rising interest rates.

It also allows you to know what your repayments will be over the fixed term, which gives you more certainty with regards to planning your finances. 

In addition to this, many banks are currently offering fixed rate loans for owner occupied home loans that are equal to, or even lower than their variable interest rate.

What’s the catch?

While this sounds great, there’s also the downside that if interest rates do fall you’re stuck on the higher interest rate until your fixed term ends.

The other issues that you need to consider are all related to the restrictions that the lender places on your home loan once you fix:

- Most lenders will have a maximum in extra repayments you can make into the loan over the fixed period, sometimes as low as $5,000 for the entire fixed term. 

- There will most likely also be no offset account available or ability to redraw from the home loan.

- The other major factor to consider is that if you repay or close the fixed loan during the fixed term then the bank can charge you penalties, and these are basically determined by the bank at the time, and can range from hundreds to thousands of dollars.

Why would I fix then?

I always speak to my clients in Scarborough about their reasons for wanting to fix, because these are more important than the actual issue of whether or not you can same money.

Fixing your home loan isn’t always just about the rate - when you fix you’re saying “my goal is to forget about my loan for a few years”, because effectively by fixing you’re giving up the ability to repay any extra meaningful extra cash into the loan.

You’re also making a commitment to stay in the same house and not sell or move for the fixed loan period, because selling the house would require you to repay the loan, therefore breaking the fixed contract and meaning you’ll be up for break costs.

Remember that the main things to consider when thinking of fixing are your goals over the fixed period, because they will determine whether or not you’ll be happy with a fixed loan regardless of the financial benefit.

 

If you want to discuss whether or not a fixed interest rate might be suitable for you, feel free to contact me on 0413 938 848, or send me an email at jason.coviello@mortgagechoice.com.au. Or, if you'd prefer to be social about it, feel free to get in touch here via my Facebook page! 

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Posted in: Interest rates

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