Written by Clinton Waters (Licensed Mortgage and Credit Adviser @ Axton Finance).
With interest rates at the lowest levels on record, it’s worth considering whether you should fix all or part of your loan.
Fixing rates can be advantageous but it can also be costly, so before you do make sure you ask yourself these four important questions:
- Are my circumstances likely to change?
If there’s a possibility that your circumstances may change which may make it harder to meet the repayments on your loan, you might want to think about fixing. Scenarios could include:
- Changing jobs
- Starting a business
- Having children
Fixing will provide you with the certainty of knowing what your repayments will be no matter what happens to interest rates. This will mean that if rates rise, your repayments will stay the same. If you’re likely to experience any of the above changes, there’s a good chance that this will be a huge relief at the time and provide a sense of peace of mind in the meantime.
- Do I have any windfalls or lump sums coming?
For almost every lender, you cannot generally pay more than the set repayments on a fixed rate loan*. This may leave you lamenting a lack of planning if you were to receive a windfall and wish to knock down your loan.
If you are expecting a windfall, it might be best (depending on the size of your loan and expected windfall) to maintain a portion of the loan on a variable rate. Almost all lenders will enable you to fix a portion of your home loan based on almost any percentage you wish.
*Offset accounts are usually not allowed or calculated on a small percentage partial amount on a fixed rate loan.
- How long should I fix for?
This is usually a simple matter of personal preference.
From years of experience, most clients generally fix for between two and three years. The reason being that this is usually where the best-fixed rates exist as well as providing some cost certainty over the medium-term for most clients.
- Will I pay more if I fix?
This is usually a function of what term you decide to fix for – generally speaking the longer the fixed term the more expensive the rate becomes. This is because banks and lenders price their fixed rate mortgages on the basis of future expectations. Before fixing you should be consulting your mortgage broker to run the numbers for you on the different periods and rates to ensure that you chose the one with the highest probability for working well for you.
This blog was originally posted on the Axton Finance website. You can view the article by clicking here.
If this article has you thinking that should be seeking the advice of a mortgage broker, let us know and we'll get you in touch with Clint or one of the other professionals at Axton Finance.
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