Since we’ve gone back to work after the summer holidays, I seem to have been asked one question more than any other. “Is it time to fix my home loan interest rate?”
The reason clients are asking this is that we are seeing fixed interest rates at more than 1% p.a. below some variable rate loans and there are lots of fixed rate loans with rates below 2% for 2-4 year periods. That is a big saving for fixing in your loan for the next 2-4 years.
The official cash rate is .10%. The last rate cut wasn’t passed on to variable rate loans only to fixed interest loans. The RBA’s current stance is there is no way that there will be negative interest rates. Their policy can change but that is their current stance.
This doesn’t seem to leave us a lot of room for interest rates to go lower. One of the big draw backs of fixed rate loans is that you don’t see any interest rate cuts if they happen… the odds of another cut are low.
So there is a case that we may never see rates this low again. Having said that…
There Are Some Drawbacks To Fixed Interest Loans
While the idea of paying less for your home loan and knowing exactly what you’ll be paying over the next 2-5 years is very reassuring, it does come with some conditions. The main one is break costs. Break costs are when you want to get out of a fixed interest loan early. Either to refinance or because you want to move. They’re calculated based on the rates at the time of breaking and how long is left to go in the fixed rate term. If you aren’t going to move during the fixed period, this drawback is easily avoided.
The second drawback is around extra repayments or using an offset account. There is a limit to how much extra you can pay back on a fixed rate loan and offset accounts aren’t 100% offset, except at a couple of lenders. If you are serious about paying down your debt, the way around this is to split your loan, make some of it fixed, some of it variable (how much depends on a few things) and then we can use your extra repayments to pay down your variable component and the fixed part reduces your over-all repayment. Second drawback avoided.
Fixed rate loans are worth considering when drawbacks aren’t a drawback for you and you want to reduce your repayment. If you have any questions or would like to fix your interest rate then call 1300 661 211 or register online at https://www.mortgageworldaustralia.com.au/ and we can explore if fixing is the right move for you at the moment.
Patrick is a Director and a Home Loan Specialist. He has been helping Australians with home loans since 2001. Prior to working as a mortgage broker Patrick was employed by Macquarie Bank for 3 years and also worked as an accountant for a publicly listed company. Patrick holds a Bachelor of Business majoring in Accounting and sub-majoring in Finance and Marketing from University of Technology, Sydney.