Fixed vs Variable Home loans

There is again some speculation in the banking sector around when the Reserve Bank of Australia will lift the cash rate, currently at 2.50%.  Westpac Chief Economist, Bill Evans, predicts world growth to boom in 2015, 2016 and 2017 and believes that Australia will see rate increases during 2015.

Of late, we have received an increase in queries from existing and new clients as to whether they should fix their home loan, or at least a portion.  Each case is different and there are benefits to both variable and fixed rate loans.

Rates are generally fixed for 1, 3 or 5 year period.

Benefits of a Fixed Rate:
- Budgeting is easier – you can be assured of the repayment required for the fixed period.
- Rate increases will not affect you – when and if rates rise, you can be assured that your repayment will not increase until the end of your fixed period.

What you can lose by taking out a Fixed Rate:
- Rates can drop – if rates go down, you may find that your repayments are actually higher under a fixed rate than they might be on a variable rate.
- Extra Repayments – there are a few lenders who allow extra repayments, however, in most cases these are limited.  A variable rate generally allows unlimited extra repayments.
- Break Fees – fixed rates often come with a break fee if you change or pay off your home loan within the set fixed rate period, even when selling your home.

You could consider splitting your home loan between fixed and variable.  This is a popular option as clients are thinking that rates will rise in the future and they taking advantage of some of the great fixed rate options on offer at the present time.  We can discuss 5 year fixed rates from as little as 4.99%.  Some lenders can also offer an offset account attached to their fixed rate product.

I would be happy to discuss your individual circumstances.  Call me, Michael Wren on 9813 3522 or email me at michael.wren@mortgagechoice.com.au for further information.

Posted in: Interest rates

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