With some of the major lenders recently lifting interest rates on variable home loans, we’ve had a number of enquiries this week as to whether now is a good time to lock in an interest rate.
As predicted, Westpac’s recent decision to increase variable home loan rates was soon followed by Commonwealth Bank, St George and ANZ.
NAB was the only Big 4 bank not to hike up rates, citing a need to “rebuild trust” with customers.
Yet with the bulk of the market moving variable rates up, and some fixed rates now being the same or lower than variable rates, many are asking: is now a good time to lock in an interest rate?
Well, like everything in life, the answer depends on your personal situation.
Fixing the rate
A fixed home loan has an interest rate that’s fixed and won’t change for a set period – usually one, three or five years.
Having a fixed home loan means that rate rises won’t affect you, but it also means that if rates drop, you will stuck paying the higher rate.
Selecting a fixed home loan can give you a sense of clarity and certainty, and as such, will help you budget and plan ahead.
So, while others are grumbling about rising interest rates, you can be content knowing you won’t be affected. That said, future interest rates rises are never a foregone conclusion.
If you are in a fixed rate home loan and for any reason want to discharge your loan or change the loan type, you will incur additional brake fees from the lender.
In some cases fixed rate loans may have less flexibility than a variable rate loans in regards to additional features such redraw and the ability to make extra repayments so you need to ensure you fully understand the features, terms & conditions of the loan before committing.
You might prefer a fixed home loan rate if you:
– Believe interest rates will rise in the future
– Are comfortable with the interest rate you are committing to pay
– Prefer to be able to accurately plan your finances in the short and mid-term
– Are concerned that you would be unable to make your repayments if rates were to rise.
Variable home loan rate
A variable home loan has an interest rate that changes. Instead of staying at a certain fixed level, the rate will move according to market interest rates.
As a result, your repayments will either rise, fall, or fluctuate over the term of your loan. This means that sometimes you’ll pay more than a fixed loan, while other times you’ll pay less.
Variable loans can come with advantages linked to their flexibility.
For example, it can be cheaper and easier to switch loans if you find a better deal elsewhere than it would be if you had a fixed loan.
Often you’ll also be able to make extra repayments on your loan at no additional cost, which can help you pay off your loan more quickly.
You might prefer a variable home loan rate if you:
– Suspect interest rates will stay put or fall over time
– Are unsure about interest rate movements and would prefer to go with market rates
– Are confident you could manage a rate rise
– Don’t mind having some unpredictability in your financial planning.
Still on the fence?
With so much at stake it can be difficult to decide on the best option. The solution? Give us a call to discuss your needs and we can help find a solution thats right for you.
Discussing your individual circumstances and financial goals can help you decide whether a fixed or variable loan is right for you.
And if a fixed loan is not right for you, we can look into other refinancing options to see if there are other lenders out there offering a better home loan rate than the one you’re on.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.