With the recent announcement of the RBA to reduce interest rates, is now the time to fix your loan?
I get asked this question by many of my clients, and although I’m not able to provide specific loan advice, I do tell them that it is something they should consider and to speak to a loan specialist about their situation.
At present most fixed rates are lower than the standard variable rates. This is highly unusual and more than likely signals the bottom of an interest rate cycle. Will there be more rate cuts to come? Maybe or maybe not; the experts tell us mixed messages and who am I to make that call!
If you are considering fixing your loan here are some tips to think about:
- If you fix your loan for a period of time (say 3 years) be aware that there are often high costs to break the loan early. I’ve had couples who have separated and have had to break the loan because they had to sell their home. The exit penalties were significant! Circumstances change, so if you do fix, consider the timeframe very carefully.
- If you are the type of person that pays a significant amount more than the monthly minimum towards your loan, then carefully consider whether a fixed loan is appropriate, because you cannot pay extra towards most fixed loans.
- A fixed loan cannot typically have additional repayments paid towards it so consider fixing a portion of your loan rather than the whole amount. This way, you can continue to pay down the variable portion with additional repayments.
- Speak to a mortgage broker. Mortgage brokers are there to help find you an appropriate loan at a competitive rate. Often the banks don’t tell you about special deals because they want you to stay in your uncompetitive loan where they make more money. A mortgage broker can tell you about many special deals that are out there and have access to dozens of lenders to get you a great deal.
Feel free to drop me a line at email@example.com or follow me on Facebook at Heidi Schwegler – TFG Financial.