3 minute read
Lending Matters
RICHARD WEST Top Ten Home Loans
RECORD LOW INTEREST RATES RAISES THE QUESTION: “TO FIX OR NOT TO FIX?”
Advertisement
During this period of record low interest rates a frequently asked question is about whether to fix interest rates. ‘Should I fix now, or should I wait and see if interest rates go even lower?’. I wrote about fixed rate considerations six months ago. Since then the Reserve Bank of Australia (RBA) has cut rates twice. So it might sound like a simple question but giving an answer is not straightforward. And that’s not just because it’s difficult to predict what interest rates will do – it’s because you need to consider the question: ‘Is fixing my interest rate the right strategy for me?’
Fixed mortgage rate loans – pros Taking a variable or fixed rate loan depends on your personal financial goals. Fixed rates lock interest rates for a set period of time – usually one, three or five years. Budgeting is therefore easier since you know exactly what your repayments will be because your rate is insulated from interest rate rises for that fixed period.
Fixed mortgage rate loans – cons Fixed interest rate home loans are usually no frills products without extras. But variable rate home loans usually come with extra features – like the capacity to make extra repayments, redraw facilities, credit cards and mortgage offset facilities. These variable loan features may save you money. Obviously if rates fall there will be no reduction on your fixed rate repayments. Fixed rate loans usually have substantial break fees. So if you pay off, prepay or refinance your mortgage before the end of the fixed rate term you may be penalized.
The alternatives? If you are concerned about rate rises making your mortgage repayments unaffordable and you want the flexibility and cost-savings of a variable rate home loan, choosing to split the loan between a variable and fixed rate may provide a suitable solution. Fox example you may choose to take 50 per cent of your home loan at a fixed interest rate and the other 50 per cent at a variable rate. This option provides some protection against the risk of interest rate rises, whilst still giving you the capacity to make extra repayments and take advantage of other facilities that variable rate home loans have on offer. However, paying off the fixed rate portion may still incur a penalty.
So is now a good time to fix my interest rate? Interest rates are at historical lows. However, if you’re waiting for interest rates to hit absolute rock-bottom before you fix your interest rate remember there’s simply no way of guaranteeing interest rate direction.
But seeking information from your broker before you make the decision to fix, not to fix (or decide on a combination of both) will help to support an informed decision.
ABOUT THE AUTHOR Richard West is the owner of Top Ten Home Loans, mortgage brokers on the Sunshine Coast. He has over 25 years’ experience in the domestic and international banking and finance industry. Richard is a graduate of the University of the Sunshine Coast and holds a Diploma in finance/mortgage broking management.
Fixed or variable rates? Check out your options
Ask for a free HOME LOAN HEALTH CHECK
Home loan fixed and variable rate examples (On offer at time of writing. Conditions Apply)
3 Year Fixed Rate 4.15% - split option available (Comparison Rate 4.16%)* Standard Variable Rate 4.15% - with offset account. (Comparison Rate 4.16%)*
Richard West Mortgage Broker
M: 0402 845285 T: 07 5446 1499 F: 07 5471 6744 W: www.toptenhomeloans.com.au A: PO Box 358, Coolum Beach 4573 Aussie Sunshine Finance Pty Ltd ABN: 62 725113 713 * Each comparison rate is based on $150,000 over 25 years. Comparison rates apply to the examples given. Different amounts and terms will result in different comparison rates. Costs such as fredraw fees or early repayment sfees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Your full financial situation would need to be reviewed prior to supporting an application for any offer or product. Conditions apply. Richard West, Top Ten Home Loans (Credit Representative No. 403266) is authorised under Australian Credit Licence Number 389328.
