March 21, 2012
We have until recently seen an increase in demand for fixed rate loans. Up until January, our national loan approval data for new loans shows demand for fixed rate loans had risen steadily for eight consecutive months.
This may be due to the fact we’ve seen some good fixed rate deals come about over recent months and a large number of products are priced below that of variable rates.
Lenders have been reacting to subdued home loan demand and uncertain economic conditions by re-pricing fixed rate loans and continuing to bring out attractive offers in the hope of boosting the flow of customers walking through their doors.
However, economists are suggesting current home loan pricing is about as competitive as it is going to get based on lenders increased borrowing costs and the move by some to raise interest rates out of step with the Reserve Bank.
The key message to those considering making the move to a fixed rate loan is that the interest rate should not be the driving force in your decision. When entering the fixed vs variable decision process, think about your current lifestyle and your goals.
If your major concern is security and peace of mind over your future repayments then consider fixing all or part of your loan and/or establishing a rate lock or rate cap once you make the decision. Borrowers need to be aware there is often a fee charged for these options.
Are you the type to fix your home loanA ‘rate lock’ enables a borrower to secure an advertised fixed rate for up to three months before their new fixed rate loan is due to settle (depending on your chosen lender) or the interest rate period on their current loan ends. This helps avoid paying higher a higher fixed rate. However, if the fixed rate drops between the time you lock it in and when you want to go ahead with the fixed loan, you must request to break the rate lock, which will incur a fee. Are you the type to fix your home loan
A ‘rate cap’ is similar to a rate lock in that the interest rate on a borrower’s chosen fixed loan will not move upwards. However, a rate cap allows you to take advantage of downward rate movements. If, on the loan settlement date, the advertised rate has fallen below your capped rate then you will benefit from the new, lower fixed rate.
Ultimately, a rate cap and a rate lock both protect borrowers from the possibility of rising interest rates.
The key to making any home loan decision is to educate yourself as much as possible by researching your options, i.e. take into considerations the wide range of loans and lenders available plus what affect interest rate rises will have on your repayment strategy.
It’s important to weigh up all aspects of a loan including initial, recurring and exit costs, ability to make extra repayments and redraw, flexibility, lender service and how long it will take to get your loan approved with your lender of choice.
Self-education is so important, as is taking ownership over your mortgage situation. After all, your mortgage is one of the biggest financial decisions you will make.
For more information contact Richard Windeyer on 1800 01 LOAN or click here to "Book a Meeting"