With so much emphasis on Interest Rates over the past 12 months, it’s pretty hard not to want to know more about the subject, and to make sure you’re getting the right deal to suit your situation.
The Reserve Bank has famously left the official cash rate unchanged at a record low 2.5% for so long now that we seem to be in a ‘golden age’ of sorts for those looking to get a home loan or refinance.
There are advantages and disadvantages to both fixed and variable Home Loans, and it’s important to take into account the various factors at play both now and in the future before you commit.
We’ve noticed a large push by the lending industry as a whole recently, encouraging borrowers and those looking to refinance to ‘fix’ their interest rate, or lock in a fixed rate for a set term.
While it may be tempting, it’s important to have all the facts, so here are the pros and cons of fixed rate Home Loans.
- You can manage your budgeting with relative ease as you know what you’ll be required to pay back each month for the length of the fixed term. This is the main reason many people choose to enter into a fixed rate loan while interest rates are low, like at the moment.
- You aren’t at the mercy of the market. If the Reserve Bank were to come out of their next meeting in February with the sudden decision to raise interest rates significantly, the fact that you’d have locked in a fixed interest rate for a set term would mean your repayments wouldn’t increase.
- As some fixed rates on offer are currently lower than variable rates you're immediately better off and may be able to lock in a great lower rate for 1-5 years or even longer.
- If your lender allows you the option to make extra repayments, you may be able to get ahead by repaying over and above the minimum at the lower fixed interest rate. Make sure you confirm that this option is available however, as conditions differ from lender to lender, and conditions may apply.
- If you’ve chosen to lock in your rate, but the market shifts so that interest rates drop further, you may be frustrated at having to continue to pay the higher rate. Especially in a competitive lending environment like the one we’re in now, it can be difficult to predict the optimum point in time to lock in your rate, as the possibility exists that rates may continue to drop.
- Make sure you look closely at the comparison rate for your loan as well as the fixed term interest rate. The comparison rate takes into account all fees and charges, etc paid over the life of the loan and is a true reflection of your rate over time. If you notice the fixed rate on offer is especially low, you may be making up for your initial savings by paying more over time.
At The Greater, we’ve been helping Australians own their own homes for almost 70 years, so we like to think we’re the lending experts by now. To speak to a Greater lender about the right Home Loan for you, start a conversation with us online, over the phone, or in branch today.
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