Should you, really? It is the one million dollar question that basically has been confusing debtors, especially first time home-buyers, as the official interest rates, and the real estate industry itself, is on a constant rise and fall. Expert predictions and current economic trends may help you come up with a wise decision, though. For instance, major banks in Australia like Westpac, Commonwealth Bank, and NAB are at war against each other, firing a series of lower rate discounts. Commonwealth Bank reduced its fixed rate for a five-year term to almost 5%!
Timing is Everything
Interestingly, the available fixed rate home loans from Newcastle Permanent are lower than most major banks. Its 4- and 5-year fixed rate is at 4.39%, while the other terms with a shorter number of years have a 3.99% p.a. interest rate. What does this mean? If you did opt for a fixed home loan from the start, and let’s say the rate was at 6.5% at the time you purchased the loan, then you must be regretting on the fact you are unable to enjoy this decrease right now.
However, this is not always the case. Who knows if five years later, the rate would go up again? You will probably be thankful for having a fixed rate home loan. Point being, the changes in the interest rate have always been unpredictable, especially today when lenders are gaining independence from central banks, and thus, these banks are losing control over regulating the interest rates on all house mortgages as to whether to keep them down or up.
With a fixed rate home loan, you will be able to remove this uncertainty for a certain period of time. You do not have to worry about the abrupt changes in your country’s interest rate and the need to check if you will be able to keep up with higher interest rates. Unlike its counterpart, the variable rate home loan, this type of mortgage may apply the ongoing interest rate without prior notice. In home loans, timing is everything.
Part Variable, Part Fixed Rate Home Loan
Some debtors do not like the idea of paying for a break cost once they decide to terminate the fixed rate contract. Although the break costs have considerably decreased in the last couple of years, the inability in making flexible payments (lump sum, extra repayments, etc.) does make fixed rate loan quite snobbish to debtors who are used to variable rate home loans.
For those who really want to enjoy the best of both worlds, they opt for a split type of mortgage, which uses a separate offset account which can be connected to your home loan. Split loan is a great way to balance out your outstanding credit and loan, as payment is timely released to pay for your loan via an offset account. You have to be a good money saver though, if you want to make the most of the rate discounts you get.
Minimize the Risks by Evaluating Your Financial Objectives
When you review your financial goals, you should do it every four months. You should be able to realize if the current loan structure is really helping you with your cause. There are risks, as there are impacts. So when you make a decision on whether to fix your loan or not, you should evaluate all situations that point to finding out if your loan structure is still working for you. A good home loan product should help you stay on the right track of your financial goals, and towards improving them in the long run.
Are you looking into fixing your home loan?
