1. Should I fix my home loan?
With interest rates at historical lows currently (at time of publishing there is a 3.99%pa (3) Three year fixed home loan rate now available from a major lender!!) many clients often ask me whether they should fix their home loan mortgage when buying or refinancing their properties. My response is always the same – fixing your mortgage is guaranteed peace of mind but not a guaranteed money saving exercise.
If you were taking on a rather significant amount mortgage that you were not absolutely comfortable with if your circumstances were to change then it may be worthwhile to fix a component of your debt. Doing so will provide you with certainty that no matter what happens to rates.
For almost every lender, bar one or two, you cannot generally pay more than the set repayments of a fixed rate mortgage – if you did you are usually limited to only about $10,000 per annum or less sometimes. Offset accounts are usually not allowed or calculated on a small percentage partial amount but you can choose at no extra cost to have principal and interest or interest only loans.
2. How long should I fix for?
Well this is usually a simple matter of personal preference but from years of experience most clients generally fix for between two and three years – not only is this usually where the best fixed rates exist but it also provides a medium term structure of certainty for most clients.
3. Will I pay more if I fix?
Again this is usually a function of what term you decide to fix for – generally speaking the longer the fixed term the more expensive the rate becomes . This is because banks and lenders price their fixed rate mortgages on the basis of future expectations. At the time of writing this piece (April 2015) home loan rates have been at historical lows.
4. How much should I choose to fix?
Almost all lenders will enable you to fix a portion of your home loan based on almost any percentage you wish. A good yard stick is 50/50, 60/40, 70/30 fixed and variable respectively. Another good question to ask your self how much do you think you could pay off the variable loan during the initial fixed term - are there any windfalls or lump sums that you may be expecting?
If its all too hard to make a decision now or you think that rates are likely to drop further then you can also usually settle your loan as being variable and choose to fix at a latter stage. Depending on the lender there may be a small maintenance fee to do this depending on the product and package you are on.
Of course should you have any questions please feel free to myself Clint Waters at AXTON Finance Hawthorn East on 03 9939 7576 or [email protected]