Fix or not to Fix Interest Rates
With rates at historic lows, to Fix or not to fix can be an important question. Fixed & Variable each have their pros and cons and while it is hard to know the direction of interest rates, one can make an informed choice over which type of home loan is most appropriate for your needs.
In saying to fix or leave variable one must also consider that you can also split your loan between fixed and variable. By splitting your loan you can have an each way bet if rates were to rise.
The fixed component of the mortgage is then protected against any rate rise. And if rates were to fall, then the variable part will enable you to take advantage of lower interest charges.
Some believe you are taking a gamble if you choose to go either wholly fixed or variable so going for a combination of the two enables you to hedge your bets.
Fixed rates do provide a level of certainty at an agreed rate for an agreed time for a fixed payment.. Throughout this period the rate will not change and you know in advance what your repayments will be. This makes it easier to budget and if rates rise, your repayments stay the same.
The flipside is you don’t benefit from any fall in interest rates, as you are locked in until the end of your term. Fixed loans are also less flexible; you generally can’t make extra repayments – or the amount you can make is often capped at a low amount. Again, this is where a split loan can be beneficial, as if you are in a position to be able to make extra repayments, you can make these on the variable rate component of your loan.