To fix or not to fix!
With record low interest rates now has never been a better time to review your home loan. Both types have pros and cons and while we cannot predict the direction of interest rates, we can make an informed choice over which type of home loan is most appropriate for our needs.
Let’s start with the basics on understand the two types of loans –
Fixed – With a fixed rate home loan the rate stays the same for the fixed period term, giving you the security of always knowing the rate at which you’re to make repayments. You choose the term you wish to fix for which is generally one to five years, with 3 years as the most popular.
But which one is right for you?
The best option would be to speak with FinFit Lending Mortgage Broker Brisbane to seek professional advice. Before you seek advice from a qualified Mortgage Broker there are some questions you should ask yourself –
How flexible do I need my home loan repayments to be?
Do I want to make extra loan repayments?
Do I want to be able to pay extra and be able to take money out of my loan?
How much do I value the security of knowing the exact repayment each month?
Do you see any significant changes to your financial situation in the future?
Now let’s have a look at the benefits of fixed and variable loans:
Fixed Rate Loans
You are not affected by rate rises. While you are in your fixed contract the lender cannot change your interest rate. If interest rates rise your loan repayments stay the same. The flip side of this is that if the Reserve Bank decrease interest rates you loan repayments will not go down, the will stay the same as your rate is fixed.
Variable Rate Loans
Flexible options to add more to your loan and pay it off sooner.
If interest rates fall so do your repayments (don’t forget if the Reserve Bank raise official interest rates your home loan payments will increase). Generally they have more features like redraw, offset accounts and the ability to pay your loan early.
Why Not Have Both?
Another option is to do a combination. You can split your loan and have part the loan fixed and part of the loan variable. For example, fix 50% of your loan and keep 50% variable to manage some of the risk of interest rate rises, while still being able to make extra repayments. This way you have the best of both worlds and are hedging your bets.
It is impossible to predict exactly where rates will be in the future so consider your options carefully and seek the advice of a professional Mortgage Broker Brisbane. There is no right or wrong decision. It ultimately comes down to your individual situation.