To fix or not to fix, that is the question!
I hope you are well and looking after yourself during these times of forced isolation. With our number of new cases falling, I hope that we can resume our normal activities soon!
To fix or not to fix— this is a question I get asked all the time and many borrowers struggle to find the answer to.
The certainty a fixed rate home loan offers, especially for those who are budget conscious, can be attractive, however, taking a fixed rate has historically meant paying a premium to the variable rates available.Statistics tell us that the borrower loses out most of the time (more than 80%) on a fixed rate as the banks leverage extensive research to understand where interest rates are moving and see fixed rates an an opportunity to lock in margin.
One of the quirks of our COVID-19 world is that fixed rates have now fallen below discounted variable rates! This is a rare event and one that I feel is worth every mortgage customer exploring.
What should I consider before fixing my rate?
While a fixed-rate home loan provides you with certainty, and at the moment potentially a lower interest rate, there are times when it can turn into a bad idea.
In the event variable rates fall, a fixed rate loan could mean that you will not be able to take advantage of a lower interest rate or may have a break cost to pay in order to exit the fixed rate loan.
Carefully consider if you expect any material changes to your circumstances over the duration of the fixed rate term.
If you currently pay more than your minimum repayment amount, it is worth knowing many fixed rate loans have limits to how much you can make in additional repayments. If this flexibility is important to you perhaps a combination loan which provides a fixed portion and a variable portion may be an option.
Offset accounts have become popular and the good news is that we can now arrange fixed rate loans which also provide you with an offset account.
If you plan to sell the property, then don’t fix your rate, as you could be up for break costs and fees if you sell during a fixed rate period.
To explore if a fixed rate is right for you, please contact me for a discussion about your options.