Recently I've had many clients enquire about changing their variable rate home loan to a fixed rate loan. There are pros and cons with both, therefore it's important to make a decision based on your ongoing circumstances rather than just the cheapest rate available at the time.
For example, there may be an excellent 2 year fixed rate of 4.39% available but is that the best option for you long term? Do your circumstances mean that we could lock in the fixed rate for a 5 year term, which overall may save you more than a shorter 2 year term?
To fix? Or not to fix? Here's some of my key points to help you make an informed decision:
- Lenders are currently offering highly competitive rates
- There is a possibility interest rates won't go much lower than they are at present, which could make now the time to fix
- Fixing all or part of your loan can give you a low rate and protection from possible future rate hikes
- Fixing your loan brings certainty of repayments (which can make your mortgage easier to budget for)
- Fixed rate loans typically do not have features such as redraw facility or allow you to make extra payments
- You run the risk of paying higher repayments than if you'd stayed with a variable rate
- You won't benefit from any rate falls that may occur during the fixed term
When thinking about fixing your loan you must always think about your future. If you want to get out of ('break') a fixed rate term, you will usually be charged extra costs which can run into several thousand dollars depending on how rates have moved.
Luckily, there is a way to combine the certainty of repayments of a fixed rate with the flexibility of a variable rate loan, and that's by splitting your mortgage between fixed and variable rate components. It can give you the best of both worlds. Before you make any decisions about fixing your loan, it is important to speak with your mortgage broker to determine what works best - fixed or variable rate, for your circumstances.
Watch our video below to learn more about Fixed Vs. Variable Home Loans
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