Following years of ultra-low interest rates, discussion is rising amongst economists about a sooner-than-expected interest rate rise. The Reserve Bank of Australia has indicated that if economic recovery continues faster than expected, then the timing of interest rate rises would be brought forward from the RBA’s previous suggestion of 2024.
Which raises the question, for the six million home loans in Australia, is it time to lock in at least a portion of the loan with a fixed interest rate?
If you are susceptible to financial pressure brought about by changes in interest rates, then a fixed rate mortgage may be appropriate for you. If you are heavily mortgaged with very little room to move with cash flow whereby changes in interest rates could cause you to default on your loan, then the peace of mind and predictability of a fixed rate may be justified.
Choosing the Right Fixed Rate Loan
If you have determined that a fixed rate loan is right for your circumstances, then compare the loans being offered. For example:
- What happens if I want to sell my property during the fixed rate term?
- How much in extra repayments can I make?
- Can I redraw those extra repayments?
- How much will I be charged to secure this rate whilst I arrange the refinance of the loan?
There is great variation between lenders on the conditions of the loan, even when the fixed rate appears the same. For example, some banks only allow $10,000 per annum in extra repayments during the fixed rate term. In comparison there are other lenders that allow more in extra repayments, which would make a significant difference over the term.
Most Importantly
If you decide to fix some or all of your loan, bear in mind that you are committing to one lender for a fixed period of time. Your ability to shop around for better rates and conditions are significantly restricted for the term of the fixed loan. I can help you assess the fixed rate offers across the market.
Alternatively, if you decide to ride the wave of interest rate changes with a variable loan, then ensure you are on a competitive variable rate with advantageous loan conditions.
Give me a call on (02) 9908 9888 or email tricia.williams@edneyryan.com.au for a free ‘Loan Check’. I can compare your rates, term and conditions to hundreds of competitive products.