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Fix or not to fix interest rates

Fixed Interest Rates – To Fix Or Not To Fix

To fix or not to fix interest rates is the question we are being asked regularly. It is an understandable question with interest rates at an all-time low of 0.1 per cent, it is hard to believe they will go any lower. So, is now the time to fix?

What Is A Fixed Rate Home Loan?

A fixed interest rate home loan is a loan where the interest rate does not change during the fixed rate period of the loan, typically 2, 3 or 4 years. This allows you to lock in your interest rate and helps you to have certainty around future repayments. In contrast, variable rate loans move with any rate changes in the market, depending on the decisions of each bank.

What Are The Pros And Cons Of A Fixed Rate?

Pros

  • The interest rate may be lower than variable (this is common across multiple lenders at the moment) and can help you pay off your mortgage faster
  • Makes forecasting your budget easier as you know what your repayments will be for the length of the fixed term, helping you to control your debt
  • Less loan features could cost you less in bank fees
  • If interest rates increase your rate stays the same for the duration of the fixed period

Cons

  • You do not get the benefit of any interest rate cuts during the fixed period
  • If you want to repay or change your loan during the fixed period, there may be break costs, depending on your circumstances (i.e. how long you’ve held you loan, how much is owing etc.). Not all loans have break fees, so it is worth looking into what conditions your loan holds.
  • No redraw facility available
  • Most banks will not allow a 100% offset account linked to the loan
  • There are limits to the amount of extra repayments you can make, depending on bank. Some make a maximum of $10,000, other will allow more in repayments. It again depends on your loan product, but something worth discussing with your mortgage broker.

What Happens If The Rate Changes Before I Settle My Loan?

“Rate lock” is a feature banks offer where you can lock in the interest rate at the time you are lodging your loan in return for a fee. The benefit of rate lock is that you are locking in the agreed rate when you apply for the loan. You pay a fee for this feature, so it is advisable to discuss this withy your mortgage broker to way up the pros and cons.

Do I Need To Fix All Of My Loan?

You can choose to fix all or a portion of your home loan. This helps you “sit on the fence” and take advantage of whatever part (the fixed or variable) is being more favourable at the time. Whether you want to fix or not fix your loan is a decision only you can make. To help make the decision easier it is worthwhile discussing your circumstances with your mortgage broker.

Our mortgage broker Fiona Haasnoot is here to answer any of you questions regarding fixed interest rates or variable rates. With interest rates at all-time lows is it a great time to refinance your loan and get a more competitive interest rate. Call 02 4038 1623 or book online to organise a complimentary meeting with Fiona.

Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Licensing Statement: Credit Representative 525053 is authorised under Australian Credit License 389328.

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