Our Product Manager David Bryde warns about being lured by a fixed rate home loan without considering what happens after the fixed term expires.
After the Reserve Bank kept the cash rate steady this week some industry commentators suggested that now could be a smart time to take a fixed rate on your home loan.
It is possible that we’re getting close to the bottom of the interest rate cycle and with one to three year fixed rates being lower than variable rates it may well make sense.
If you’re looking to follow their advice, my warning is to avoid being lured in solely on a headline fixed rate.
Of course you should compare the rate you’re paying for the fixed period but you also need to consider the rate you’ll pay AFTER the fixed rate expires.
It’s very easy to overlook the fact that most lenders place you on to their most expensive variable rate once your fixed term expires.
You might have a competitive rate for your fixed term but you don’t want to be dumped on to an uncompetitive variable rate for the remainder of your loan term.
It’s vital to look at comparison rates when you’re shopping for a fixed loan.
This rate includes the up-front and ongoing fees you’ll pay on your loan and, most importantly for fixed rates, it also factors in the rate you’ll pay after your fixed term is up.
You’ll see the difference it makes when you compare our rates to the rates of our competitors.
The headline rate of these products is identical but look at the rate you revert to after 2 years with the NAB product. It ends up costing you almost $30,000 over a 25 year loan term.
CBA’s headline rate is 0.25% cheaper than ours but its revert rate is higher and, together with the annual fee, costs you more over 25 years.
This data has been sourced from the Key Fact Sheets all financial institutions must provide on their websites. They’re an excellent source of information that help consumers understand exactly what they’re getting in for.
I’d love to hear your thoughts on whether you think it’s fair that fixed rates revert to uncompetitive variable rates.