Fixed Rate Loans
Fixed interest loans need to be carefully chosen because you are committed to that lender for the fixed rate period.
Choosing the right loan is a great start but what is the point if you lock yourself in when rates are high only to see the reserve bank cut interest rates?
By fixing when the economy is running smoothly and interest rates are cheap you will protect yourself from credit crises and volatility.
Unfortunately, most Australians fix when rates are high because they fear that rates are going to go higher!
This is not out of a rational decision to look at the overall term of the loan or what rates are likely to average over that entire period.
Of those who apply for a fixed rate loan, many of them would be better off with a variable rate.
Why is it that some people are better off with variable rates?
Well, fixed rates tend to have high exit fees called ‘break fees’ or do not allow you to make large additional repayments.
A fixed loan is like a fixed contract: if you break it then it is going to cost you a small fortune!
Do not fix your rate if you are planning to:
- Sell your property,
- Make a large lump sum repayment,
- Refinance your home loan,
Flexible fixed rates (splitting the loan to be half fixed and half variable) may help if you are planning to make extra repayments but this will not help if you are selling or refinancing as you would still incur large exit fees.
Of those who apply for a fixed rate loan, many of them would be better off with a variable rate.
Why is it that some people are better off with variable rates?
Well, fixed rates tend to have high exit fees called ‘break fees’ or do not allow you to make large additional repayments.
A fixed loan is like a fixed contract: if you break it then it is going to cost you a small fortune!
Do not fix your rate if you are planning to:
- Sell your property,
- Make a large lump sum repayment,
- Refinance your home loan,
Flexible fixed rates (splitting the loan to be half fixed and half variable) may help if you are planning to make extra repayments but this will not help if you are selling or refinancing as you would still incur large exit fees.