Should you fix your home loan when rates are low?

September 21, 2016
Melinda Halloran

Right now interest rates are sitting at record lows, but will they go lower? This is the question on every home owner’s mind.

With so much speculation that rates can only go up from here, many borrowers are starting to consider switching to fixed-rate mortgages. There are some great deals available on fixed loans at the moment, but there’s more to think about than just the advertised interest rate. 

Why fix your mortgage when rates are low?

While it’s difficult to predict what will happen with interest rates, they will inevitably rise again at some point. At the moment, many borrowers feel that further rate cuts are looking less likely, which is why they are eager to lock in low interest rates now before they begin increasing.

Additionally, a lot of lenders are currently offering very competitive fixed-rate loans, which increases the appeal of switching away from a variable-rate loan. 

Are rates likely to fall further?

The likelihood of more rate cuts depends upon a number of factors, including the state of the housing market, inflation figures and the general strength of the Australian economy. These factors regularly fluctuate, making it hard to predict what will happen next.

If you are in the process of reviewing your mortgage, remember that if you are paying more than 4% interest, you are paying too much. 

A fixed-rate mortgage may give you peace of mind, but there are extra factors to consider when weighing up which type of mortgage is best for you.

Related: Should you refinance your mortgage?

Fixed or variable – which is best?

Fixed and variable loans each have their own pros and cons. Fixed-rate loans do give you the certainty of set repayments regardless of what happens to interest rates, however there are some limitations with this type of loan. These include restrictions around making extra repayments and costly break fees if your circumstances change and you wish to sell your home or refinance.

If you need greater flexibility, a variable-rate home loan may be the best option for you. The ability to make extra repayments is very attractive to borrowers who want to get ahead. While rates are low, extra repayments are easier to make and put you closer to paying off your loan. Additionally, variable loans offer extra features such as redraw facilities and offset accounts.

Related: Fixed vs variable home loans

Five questions to ask before fixing home loan interest rates

If you are considering locking in a low interest rate, ask yourself the following questions:

  • Do I want to sell my home before the fixed period ends?
  • What loan features do I need? And does a fixed-rate loan offer them?
  • Do I want to make extra repayments on my loan?
  • How long do I want to fix my loan for?
  • Will I need to refinance in the next few years to pay for things such as renovations?

Consider fixing part of your loan

Depending upon your situation, fixing part of your home loan may be the best solution to ensure you always win in some way, regardless of what happens to interest rates. This gives you the certainty of set repayments for part of your mortgage and the flexibility to make extra repayments, access equity and utilise an offset account.

In our uncertain environment, it makes sense to regularly review your mortgage. There may be a better deal you could be taking advantage of. To see if fixing your home loan is in your best interest, feel free to contact me for a chat.

Luke Cashin
0419 733 862
luke.cashin@mortgagechoice.com.au 
Your Garden City Mortgage Broker, Brisbane
 

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Posted in: Interest rates

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