Good question! This is something we get asked all the time. The answer is….it depends on your own personal circumstances. Ultimately we consider the following when assuming whether or not a client should fix their rate:
- The client asks for it. If the client insists on a fixed interest rate, then we will ultimately look to find a lender that offers the most competitive interest rate for the required fixed period.
- The certainty of payment. For some people refinancing or buying a new property, they simply want the certainty of payment. This provides peace of mind in knowing that the repayments will remain the same over the fixed period. When you don’t have a lot of surplus funds, this can be very important.
- Best of both worlds. Not sure if you do fixed or variable? Why not do both?
- Securing a low-interest rate. With interest rates below 4%, some are suggesting that they are as good as they get. Many economists are tipping that banks will start to increase their rates from mid-2019. Being able to secure a low rate for the next 2+ years might not be a bad idea.
- No plans to make extra repayments. Most lenders will restrict the extra repayments you can make towards your fixed loans. If you extend the allowed limit, you may incur additional fees. If you do not want to make extra repayments or saving you want to offset against your home loan, then you may need to consider a variable loan instead.
- No plans to refinance or payout loan. If you have no reason to sell your house or refinance, then a fixed loan may be suitable for you. As some people may know, paying out a fixed interest loan can sometimes incur very high break fees.
How are break fees calculated?
Home loan exit fees are calculated by working out the difference between wholesale rates between the time when you have applied for your mortgage and when your loan is repaid.
This figure is then multiplied by the loan amount and the remaining term of the loan.
Each lender has their own specific method of working out the fees that they will charge you and it should be listed in your loan contract/loan offer.
Does this mean that if you have a fixed loan, you should not refinance?
Not always. There have been a number of instances where, despite the break cost, we have still been able to save clients money by refinancing.
Don’t forget, it’s free to use our finance broking service. Speak to one of our home loan experts about your own personal circumstances to see if fixing your interest rate is right for you