Many Australian’s take out home loans in order to complete their property dreams and while making the decision to be a homeowner rather than a tenant is a big jump itself, the decision of whether to go for a fixed or variable home loan is another issue entirely. As mortgage brokers and experienced mortgage brokers at i Lend Finance Solutions, we want to help you make decisions like these much easier. Which brings us to the topic at hand, with the majority of lenders on our panel offering low fixed home loans – is it time to fix?
If you’re starting out on the home loan journey, locking a long-term competitive interest rate could be a smart move. You’ll have predictability, meaning you can have an exact expectation of each of your fortnightly or monthly payments for the fixed term of your loan, which makes it much easier for budgeting.
Con: Revert Interest Rates
After the fixed rate period ends, your home loan automatically reverts to the lender’s variable interest rate. Unless, you choose to fix you rate again, but this could be at a much higher rate than previously. It’s important you research and know what your lenders revert interest rate is so you aren’t left with a shocking surprise at the end of your loan term.
Pro: Cash Rate Fluctuation Protection
By locking in a fixed interest rate, means you are protecting yourself from rate rises that may occur in the future. One of the big influences for lenders’ mortgage rates is the Reserve Bank of Australia’s official cash rate. Despite indications suggesting rate stability, if the cash rate did lift, lenders could increase their variable-rate loans too.
Con: Less Flexibility
What if you get a pay rise? A bonus? Or inherit some money? You might want to put these extra funds towards paying off your home loan but you might not be able to do so if you’re locked into a fixed loan. Some fixed-term home loans restrict the ability to make extra repayments. You may not be able to make such payments, or have to pay a fee to do so.
Questions to ask before you fix:
- Can I make extra payments? Previously some fixed loans didn’t allow this and now can.
- Is there an offset account? Does it offset 100% of the balance at the loan interest rate? Lenders often try to get back some of your offset advantage when you fix.
- If my circumstances change and I need to sell or refinance, what are the break fees? With a fixed rate, you are betting against a bank that you better know the future direction of interest rates. They’re allowed to recoup their losses if you break that contract.
Indecisive? Split it
Some say to only ever fix half your mortgage – meaning you’ll always partially win. Most banks and lenders will allow you to split your loan so that you can pick up some of the pros and cons of both loan options. This decision though can also be a controversial one and it takes a deeper understanding of the special terms for each type of loan to make sure you truly are getting the best for your financial situation.
What do you think? If you are ready to take the next step to getting that property you’ve had your eye on, let us help you make the tough decisions and source a home loan that’s right for you. Contact us – Anish 0455 500 554 email@example.com or Ashneel 0416 826 440 firstname.lastname@example.org