Making the choice on whether to go variable of fixed when it comes to the interest rate on your home loan is often a confusing decision to make. In this article we hope to bring some clarity to the matter so you feel better informed and able to move forward confidently with your decision.
Fixed rates have been at an all-time low, so are they the way to go or not?
At first glance, a five year fixed rate seems very attractive. But it can also leave you wondering whether you will miss out if the rates are reduced even further.
Before you jump in and make any decision it is important to consider all the facts.
To help you make the choice, below are some of the common questions that Home Loan Connexion Brokers get asked by clients when it comes to fixed interest rates.
Can I fix now and change it later if the rates are reduced further?
No, you cannot do that. Once you fix your rate for a certain term, you need to stick with it. If you want to break the loan during the fixed term, it may cost you – and it could be a lot. It can be anywhere up to thousands of dollars depending on the balance of the fixed term.
Can I have an offset account with my fixed rates?
Some banks let you have an offset account with a fixed rate home loan, but for the majority it will be a partial offset – not a 100% offset that is usually available with variable rates.
I am going to build my house and want to fix my rate now to secure a low fixed interest rate.
When you choose to build your house, money is released in stages as the construction progresses – as such lenders usually do not let you have fixed rates until after completion.
Can I sell my house during the fixed term?
Yes, you can, but you may very well be charged a fee called a break cost when you pay out the loan during the fixed rate period (depending on the balance of fixed the term).
Can I top up my loan (equity extraction) during the fixed term?
It can be done, but if you wanted to fix it, it will be based upon what is available at the time. You should be careful not to break the fixed loan to avoid potentially hefty break costs.
Can I pay extra into my fixed loan?
Banks usually do allow extra contribution up to a certain limit during the fixed term. As long as you stick to it, you won’t pay any penalty. Speak to your broker or check the small print.
Can I redraw the extra I contribute into the fixed loan during the fixed term?
Most banks do not allow redraw during the fixed term.
I have the capacity to save X amount of dollars every year and really want my money to work hard in reducing the interest payable. How do I do it?
A split loan may be the solution. You can have the variable split to match your savings in an offset account and hence enjoy the best of both worlds.
What are the advantages of fixing my loan?
Budgeting is easy as your repayments stay the same during the fixed term.
Fixed rates may not be for everyone and you should always base your decision on your short to medium term needs. Hence it can be worthwhile to consider various factors and fully discuss the options available to you with one of our Mortgage Brokers before you make that choice. If you would rather call and have a quick chat phone our office on 1300 888 299.
General Advice Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to what is appropriate for you.