A fixed interest rate loan gives you the certainty of knowing what your rate will be for a certain period.
So, when choosing between a fixed or variable home loan rate, you are effectively banking on whether rates are likely to go up or down.
For example, if you think interest rates are likely to rise soon, then you may choose a fixed rate loan to keep your interest rates pegged at today’s rate. This has the effect of protecting you against the cost of increased interest rates.
On the other hand, if you suspect that interest rates could go lower, then you might kick yourself later if you lock in to a fixed rate and therefore miss out on the lower interest charges.
It is vital to know that fixed interest rates are not directly linked to the Reserve Bank of Australia cash rate. The individual lending institutions set their own fixed interest rates, and there is generally little warning when they make a change.
And if you later want to break your loan agreement and change your interest basis from fixed to variable or vice versa, there may be significant break costs imposed on you.
Do be aware that a fixed interest rate is not guaranteed unless you arrange a rate lock. The date that lenders apply this can vary from lender to lender – sometimes it is regarded as the published rate on the day the mortgage documents are drawn up, and for others the settlement date. There can be several weeks between these events, and the rate can differ significantly. There are ways around it, but you do need to know what the standard practice is for the lender you are dealing with so you know what’s possible.
Another option is to choose a mix of fixed and variable rates in your loan.
At the end of the day, our goal is to help you find a loan that offers a rate and terms that you can manage comfortably – and that allow you to sleep well at night.
Your Ink Wealth Advisor can help you through the maze of choices to help you into the home loan that fits you best. Contact us today to learn more.