April 02, 2015
With interest rates currently hovering around a record low it is fair to assume that interest rates will rise eventually. When and how quickly should borrowers expect rates to rise in the future, there is no easy answer to this question. Unfortunately, no one can accurately predict rates, but with speculation that the official cash rate could be cut further it’s no wonder there is an increasing number of borrowers choosing to take out a variable rate mortgage.
Recent Mortgage Choice national home loan approval data identified the demand for fixed rate products were sitting at a two year low. In March, variable rates accounted for 82% of all home loans written with ongoing discount loans proving to be the most popular variable rate product.
This comes about only a few months after an increasing number of borrowers were opting to fix their mortgage resulting in fixed rate home loans spiking to an eight month high. With a majority of economists predicting that the Reserve Bank of Australia will cut the cash rate again at either the April or May Board meeting, it is not surprising to see the demand for fixed rates decrease for the fourth consecutive month.
When it comes to choosing a variable rate home loan or a fixed rate home loan, it is important for you to make an informed decision. Evaluate your options and consider your longer term objectives.
- Do you need loan flexibility?
- What loan features do you really need?
- Would you prefer a level of certainty around payments?
- What are the current variable rates?
- What are the current fixed rates?
There are benefits and downsides with both variable and fixed rates.
- Fixed rate home loans have predictable payment amounts over the fixed term, variable do not.
- Variable rate home loans tend to be more flexible, providing features such as redraw facility and the ability to make extra payments, fixed do not.
- There may be significant extra costs to end a fixed rate loan before its term expires so it may not be a good idea to fix your rate if your thinking you might want to increase your loan, redraw on it or even sell your property.
- Fixed rates are more closely linked with prevailing conditions in the money market and therefore may vary quite considerably from variable rates.
Generally lenders will offer fixed terms between one to five years. So with this in mind you must take a view on whether variable rates are likely to rise by this much over the coming years and if so how long will they remain at this rate?
At the end of the day, there is no right or wrong when it comes to choosing between a fixed and variable rate home loan, it all comes down to your personal preference and what option you feel most comfortable with.
As your local Mortgage Choice mortgage broker in Robina on the Gold Coast I can guide you through the decision and help you make an informed choice. With record low interest rates and ongoing lender competition, the chances of getting a great deal on your home loan couldn’t be better!
If you have any questions please call or email us anytime.
As your Gold Coast Mortgage Broker and Home Loan specialist, our office is located in Robina servicing the Robina area and other suburbs including Varsity Lakes, Burleigh Heads, Burleigh Waters, Mermaid Beach, Mermaid Waters, Miami, Nobby Beach, Bonogin, Mudgeeraba, Reedy Creek, Tallai, Worongary and surrounding areas on the Gold Coast.