Some considerations if you’re looking at a fixed rate for your loan

Thursday 16 July, 2020

Have you ever considered a loan with a fixed interest rate? Right now, with interest rates so low, we’re receiving a lot of enquiries about fixed rate loans. Having a fixed rate loan offers a level of certainty, but there are a few things to consider if you’re looking at this option for your home loan.

Pros

  • No rate rises. Being locked in with a fixed rate means that if interest rates rise you have the advantage of your rate staying the same for the fixed rate portion of your loan.
  • Handy for budgeting. Knowing how much each repayment will be is helpful for budgeting and planning ahead.
  • Certainty. With any financial investment there is risk involved, so fixing your rate allows a greater level of certainty as to the financial responsibility you’re undertaking.

Cons

  • No extra payments. Some lenders don’t allow for extra repayments to be made during your fixed rate period.
  • Early payout fees. If you’re lucky enough to be able to pay out your loan earlier, you may have early pay out fees. This is important to consider if you plan on selling before the end of your loan.
  • No redraw. If you have redraw available, you’re unable to access it while you’re locked in with a fixed rate.
  • Interest rates could drop. If interest rates drop while you’re locked into your fixed rate, you won’t be able to access the cheaper rate. If you decide you want to refinance, it could be a costly exercise, too.

Things to look out for

  • Revert rate. Rates are fixed for an agreed period at the beginning of your loan, then it will revert to the current variable rate. It’s important to keep your eye on where your interest rate will sit as the fixed rate portion of your loan comes to an end.

Fixed rates are available from 1-10 years, with the rate and fixed period negotiated at the beginning of the loan. While fixed rates may initially save you money, make sure you stay on top of your rate once it’s over. The team at Finance Brokers of Tasmania audit their clients’ loans every 24-36 months to ensure they’re still getting the best deal.

Fixed rates are a great choice for some borrowers but not for others. If you don’t think it suits you, another consideration may be a split loan, where you might just find the best of both worlds.

Get in touch so we can look into the best option for your circumstances.

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