Is now a good time to be looking at a fixed rate, what are the pit falls of fixed rates?

Fixed rates are very low at the moment and it makes locking in attractive if you want to be able to know exactly what your payments are in a volatile market. The downside is some banks restrict the amount of extra money you can pay off your principal and if you are wanting to sell property or change loans whilst in the fixed period it could prove costly! However a good broker will analyse your needs and goals and you could maybe even look at a split loan which gives the opportunity for the best of both worlds, fixed and variable so you can pay off a larger portion whilst still having the assurance of a fixed portion....it all depends on your needs 😄

Hi Jackson,
As Lizzy said, having a fixed rate is great for peace of mind. Knowing that your repayments will not change for a defined period of time can be very comforting. They do have restrictions and penalties that variable rates don't have, so understanding your needs and goals is critical to selecting the best option for you. Again, I would agree with Lizzy that a split loan may be suitable to offer both safety and flexibility.
Economists are saying that rates are likely to go down before they go up over the next two years so I would probably stay variable myself and look for a split if signs appear that rates are at their bottom.
Good luck
Scott

Hi Jackson, always a good time to good. The pitfalls are the same as the benefits, the context changes depending on what your own goals/plans are.

Ie fixed rate guarantees payment and rate security for a period, but also means you dont get any rate cuts. Potential positive, or potential negative.

Regards Ariel

Hi Jackon

Great question! I think everyone has certainly covered off that anytime is a good time to look at fixing your home loan. It is certainly dependent on your personal situation more than a low interest rate as you need to consider the possible restrictions to your ability to make additional repayments for example when in a fixed interest rate period. Each lender has differing rules - some will not allow you to put anything extra into a fixed interest rate loan, while others may allow you $12,000.

You also need to think about the other benefits that you currently have with your existing variable interest home loan - does it have things like an offset facility and if it does, are you utilising it?

Personally I have seen clients who have opted for a fixed interest rate home loan and then ended up paying more in interest overall on their home loan and I have also seen the exact opposite. One thing I would recommend before opting for choosing a fixed interest rate term is working out your plan for that period i.e. if you decide on a 2 year fixed rate, what will your plans be financially for that 2 year period - things like planning holidays/travel, families, selling etc should be considered as you could be penalised if you need to change your loan type while it is fixed.

If you have any questions or if I could be of any further help, please do not hesitate to contact me privately to discuss.

Thanks,

Kathleen McCormick
Finance Consultant
Search Mortgages

​Hi Jackson,

Great question & one that I get a lot. To be honest the fixed rates are historically low so personally if it was me I would be definitely locking in some of my loan into a fixed rate. Especially if you want to have some peace of mind that you can budget for a certain amount each week, fortnight or month depending on your repayment method. I would also be leaving some of the loan as a variable loan then you can have the best of both worlds. A portion of the loan that is stable & can be budgeted for & a portion that you can either pay off quicker, park funds in offset or redraw whatever the offering is with the variable portion & increase if you intend to access any equity further down the track.

I hope this helps & please feel free to contact me should you wish to discuss further offline.

Kind Regards
Rebecca A Mitchell
Director
Awesome Lending Solutions

Hi Jackson,

This is a question that we are seeing a lot at the moment.

Interest rates are currently at historic lows, so it certainly looks an attractive time to lock in these low rates. Fixed interest rates also offers an extra level of security, knowing exactly what your required repayments will be for a period of time.

However, it is worth noting that many economists are predicting rates to stay at these low levels for the foreseeable future, and when choosing their fixed rates banks will factor in likely interest rate movements for the fixed period. This suggests that variable rates may be likely to also stay at low levels over the next couple years (though no guarantee).

Probably the two main pitfalls of fixed rates are the lack of flexibility with repayments, as you are often limited with the amount of additional repayments you can make over and above the set level, whereas you will have much more flexibility with variable rates. The other pitfall is there will generally be break costs if you were looking to refinance, so the flexibility of moving between lenders is less than with variable loans.

One option is to split your loan, providing extra flexibility around repayments with the variable portion, while also having some additional certainty with repayments on the fixed portion.

Overall there are various pros and cons of both options, and it is a case by case scenario.

If you have any further questions don’t hesitate to contact me on 07 3144 3100, and I would be happy discuss in more detail.

Regards

John Hutchinson
Announcer Financial Planning
www.announcer.com.au
jhutchinson@announcer.com.au