Since the banks recently raised the interest rate on investment properties and then swiftly followed up with an increase on all home loan interest rates, many mortgage payers are wondering whether they should consider fixing the interest rate on their mortgage. Here are a few points to think about before going for a fixed rate on your home loan:
1. Why do you want to fix your interest rates?
No one wants to pay more for anything, least of all their family home. If you want to lock in your current mortgage rate to save money by locking in a lower rate than the variable rate that you think is imminent, you may be setting yourself up for disappointment.
A bank won’t offer a fixed rate now that they think they will be able to charge more for in the next five years or so. Banks set their current home loan rates on a wide number of variables, but at the end of the day they set their rates in order to make money. They will only offer a fixed rate that they believe is a profitable risk.
On the other hand, if you want to lock in your current interest rates to create certainty and eliminate risk rather than saving money, this is the best reason to fix your rate.
2. Do you foresee any major changes to living arrangements in the next few years?
If you fix your rate for a particular period, you need to know that you are going to live in the house with no plans of sale or re-mortgaging for access to equity during that time. When you fix your mortgage, your loan is rate-locked and immediately loses the flexibility of access to equity. Of course, if your family situation changes unexpectedly, you can break your fixed rate agreement; however, you need to be prepared for applicable financial penalties.
3. How much will locking into a fixed rate actually cost you if interest rates fall further?
There is a possibility the variable rate may drop below your fixed rate at some point during your fixed rate term. If that were the case, you need to ride with the punches and not allow it to stress you out. By fixing your interest rates, you will enjoy being able to pay a consistent and fair amount in the long term.
If you are unsure whether fixing your home loan rate would be a good idea and suit you, then speak to All Nation Finance. We are trusted finance brokers in Perth.