When rates are at average levels, people speculate as to whether they will go up or down, begging the question to fix or not to fix. Times of uncertainty though, will drive people toward a more stable and therefore fixed home loan rate. It is important to note though that much thought and research must be done first to determine whether a fixed rate is necessary or not. The main factor being how much a fixed rate could save you over a variable rate.
Looking at your capability to manage uncertainty and risk will help you decide on whether a fixed rate is right for you or not, you may find yourself in a situation when rates stay constant or they may drop and it is important that you are comfortable with that possibility.
Determining whether to fix your home loan or not will have a lot to do with your finances. If you are struggling to make ends meet and are living pay check to pay check a fixed rate could work for you, knowing exactly what your repayments will be month to month will allow you to better plan as well as take control of your finances. If you are in a better financial position and have the funds to cushion the impact of an interest rate rise you may find that you can save on your home loan in the long run if you have a variable home loan.
When rates rise borrowers tend to apply for a fixed rate home loan, this will set a fixed repayment amount for years. Timing is essential when applying for a fixed home loan, it is important that you do a good amount of research and that your decision to fix your home loan rate does not come at a time when interest rates are extremely high. You cannot make extra repayments with fixed rate home loans, and may be penalised if you do so.
Aside from having a fixed rate, fixed home loans may also attract high exit fees should you choose to transfer your loan. Variable loans allow you more flexibility in terms of repayments, loans of this type typically have more useful features than the fixed home loan.
Variable loans also allow you to make additional repayments, so you are free to pay your home loan sooner if you wish. As variable loans are very competitive, it is important that you do your research and compare the rates of different lenders to ensure that you get the best possible deal.
If you are considering a standard variable loan, you must also look at the loan’s comparison rate, this rate provides an adjusted annual percentage rate that considers the loan’s true cost, making sure that excess fees are accounted for.
If you cannot decide between fixed and variable home loan rates you may decide to take advantage of both with a split loan. With a split loan, a portion of your loan is paid under a fixed rate whilst the other is paid under a standard variable rate. This option allows the borrower to take advantage of both loans, choosing the best option depending on interest rates.
To find out more about these options contact a loan adviser, they will be able to advise you on which option will work best for you.
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