Home Loans – To Fix or Not to Fix Interest Rate?

The topic of the month ‘to fix your home loan interest rate or not’ is an age old debate. If you are like many home buyers, you are racking your brains, reading countless articles and economist reviews on whether you should fix your home loan or leave it variable in today’s market. I will look to offer the pro’s and cons of both to help you understand the best structure for your home loan finance needs.

Fixing… Why fix your home loan?

Fixing your home loan has many benefits, the most obvious of course is that you will lock in a set rate over a period of time and not have to worry about rate movements, either up or down. Other benefits include...

The Pro’s of fixing your interest rate:
  • Helping you to budget – your repayments are fixed and you will not have to re budget your monthly spending if rates do go up…and eventually they will!
  • Great for investors. Locking in your rate will help to lock in your returns.
  • Fixed rates are at record lows!
  • Decide whether to fix for 1 year or up to 5 years
  • Most lenders will not let you use an offset account (an interest saving feature)
  • Create certainty for yourself and your family if you plan to have children, have up coming large expenditures
The Con’s of fixing your interest rate:
  • Break Costs. This is the biggie. If you fix for 4 years for example and for unforeseen circumstances need to sell your home you could incur big break costs depending on how many years you have left on your fixed term
  • Limited extra repayments. Most lenders will limit you to making $10,000 in extra repayments per yr
  • No redraw available, most lenders will also not let you redraw your additional home loan repayments
  • Variable Interest rates are by far the most popular, however they still have their Pro’s and Cons.
The Pro’s of a Variable interest rate:
  • Variable rate home loans are the most flexible type of loans. You can easily make extra repayments, redraw the extra repayments and more
  • Offset account. Using an offset account to save on interest will only work with variable home loans
  • You are not locked into any term and can refinance or sell your home at any time with minimal penalties
  • Depending on the market you could save on interest rates and ride the rate cuts
The Con’s of a Variable interest rate:
  • Fluctuate with the reserve bank movements
  • If rates do increase then it is normally too late to fix as the lenders will have priced in the higher rates
  • Hard to budget expenses

Overall, there are many reasons to fixed and have your loan variable and it is best to prioritise what is most important to you out of the pro’s and con’s to help you decide.

Alternatively, you can enjoy both by splitting your loan to part fixed and part variable!

To find out what would work the best for you financial situation, complete the enquiry form to talk to an expert mortgage broker and I will call you back within 2 hours. Alternatively you can contact me on 0403 084 762!

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