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Is It Worth Fixing Your Loan?

The question of whether or not you should fix your loan is very much on the table now, as some lenders have quietly begun increasing their rates already. We are at an historically low interest rate, which makes it easy to assume that we have more chance of the rate beginning to increase from this point onward.

What could you gain (or lose) by fixing your loan rate? Choosing the right mix of loan options can be difficult, but a lending specialist can assist in breaking down the best course of action for your situation.

As with most things in life, there are risks involved when choosing a fixed or variable rate. We can help break down those risks into manageable decisions. The most important thing to understand is that your mortgage can be impacted on a daily basis by fluctuating interest rates; this means your mortgage repayments can change from time to time – and if you’re not financially prepared to deal with a potential rise in repayments, this can cause real financial stress. A variable loan rate may be appealing when interest rates are stable or looking to drop, but this does mean you will lose some financial control over your day-to-day obligations.

If these risks sound manageable, a variable loan rate may work for you. But if these risks are unacceptable, then a fixed rate can provide you with some stability and peace of mind. A fixed rate means your repayments will not change, regardless of what the interest rate or the financial markets are doing.

When choosing a home loan, many institutions offer a fixed rate for a number of years. One, three, or five years are the most common fixed rate loans, and it’s important to think carefully about these terms when signing up. If interest rates drop dramatically after you have signed your contract, you will end up paying more in interest – but conversely, if interest rates spike after you have signed, you’ll have saved yourself a lot of interest during the term of your loan.

With home loan rates fixed for 3 or 4 years as low as 3.89% and 3.99%, taking the risk and fixing your rate now rather than waiting to see if the rates will continue to drop is not going to result in a huge loss if interest rates do decrease even further.

If you do decide to fix your loan, below are some facts you must consider in regards to fixed term loans. Some key things to consider as you make this decision are:

  • Some fixed rate loans may come with exit fees or they may not allow you to make extra repayments beyond your fixed monthly sum.
  • Interest rates will not affect you for better or worse with a fixed rate.
  • Terms and Conditions may differ between fixed and variable loan rates. These will need to be reviewed carefully with a financial adviser. This is a contract, and if you decide to go back to a variable loan/pay off the loan, you may get penalised. Usually penalties apply when the rates keep going down and are less likely when rates are going up.
  • You may lose some flexibility, but gain security with a fixed rate.
  • You cannot have an offset account attached (major banks)
  • If you have the ability to pay off large sums of money, it is better to split your loan and have a variable split equal to the amount you are able to pay during the fixed term. You can also keep an offset account attached to the variable to help pay off the loan faster.
  • You can also pay off funds into the fixed term loan - this varies between banks but is around $10,000 per calendar year or $20,000 for the whole fixed term with other banks.
  • If you are selling your home, you may be forced to pay off the fixed term loan or use a term deposit as a security until you find a new property, then swap the security again.
  • If you plan to refinance, a fixed loan may not be right for you.
  • As for how long to fix the loan, this can change and depends on your personal situation.

Talk to our finance department today to see how YML Group can assist you with your fixed loan rate, and making the right decision for you. Contact us on (02) 8383 4400 or by visiting the Contact Us Page

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