June 11, 2014
Interest rates have not changed for some time, but will that stay the same? Should we now be looking to fix all, or a portion of our home loans?
This all leads to the question I am most commonly asked by my existing and prospective clients; Should I fix my home loan?
It’s a great question and not an easy one to answer in all honesty. It’s one of those yes-no-maybe answers, with the answer that is right for you being totally dependent on your personal circumstances and desired comfort level.
But I’ll do my best to break down your options for you.
Interest rates are currently very low, historically low. However, they will go up. With fixed rates now increasing, the inference from the banks is that they expect this to occur sooner rather than later. Not immediately mind you, but there would be a good likelihood of increases to our variable home loan interest rates at some stage in the next 12 months as our economy improves.
With Fixed Rates currently very low, it’s clearly the right time to consider fixing your home loan. But are you a Yes, a No or a Maybe?
If your income is fixed and there’s very little money left over after home loan repayments, and groceries and bills, then fixing at this time is something you should be strongly considering. If you just want the comfort of a fixed budget, then purely for your own 'peace of mind', fixing at low rates to guard your cash flow is also something you should be considering. If so, then “Yes”, you should be considering fixing interest rates as an option for you.
The “No” field in my opinion, is very small at the moment in light of our low fixed interest rates and the strong likelihood of variable interest rates moving upwards in the near to mid future. But it’s a specific group; those who are looking to sell their home or investment home in the near future (and not immediately buying again), those who use an offset account and offset the majority of your home loan, or those with small loans and large incomes who can pay their loans down quickly. In this case, fixing may not be suitable for you – I would suggest though sitting with one of our brokers at Mortgage Choice Armadale and discussing this in more detail.
Most people fall into the “Maybes” category. “Maybe’s” will want to fix for one or all of the reasons above, but will also want options like being able to pay a little extra off their home loan from time to time, or to use features such as offset accounts or redraw – features we lose when fixing our home loan. This may even create a little doubt that fixing is right for you. For these people, I would suggest partially fixing your home loan. Any mix of fixed or variable is fine, but this method gives you maximum flexibility of the variable rate plus the security and stability of a fixed rate and allows you to maintain a relatively fixed budget. Best of both world’s really!
Everybody is different and everyone’s needs are different. So get professional advice relative to your needs and circumstances before making your decision.
Check out our video below to learn more about fixed versus variable home loans...
Give our team a call at Mortgage Choice Armadale & Kelmscott on 9485 0090. We would love to help you with your home loan.
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