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When to fix your home loan

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When to fix your home loan

Our Executive Manager of Finance and Support Services Paul Brooks, shares his insights on fixing your home loan, and the right time to do it. We answer a few key questions including whether fixed or variable rates are better, what you need to consider BEFORE fixing your home loan and an important note on interest rates.

As a child I often wondered what I would like to be when I “grow up”. That is to say, what would be my dream job? The Year book of Katoomba High School for 1987 (sadly, yes I still have a copy) quoted me as saying that I would become Formula 1 World Champion. 

Being the pragmatist that I am, I quickly realised that the odds of this ever happening were close to zero. I lacked a) a large bucket of money, b) the physical stature of a jockey & c) the ability to drive a car at insane speeds. So in rationalising a) my love of motorised things on wheels, b) my love of the written word & c) the zero odds of being a race driver my dream would be to be a motoring journalist. I may be drawing a long bow, but I am 100% positive that the question most asked of a motoring journalist would be “……what car should I buy”?

Which is best? A fixed or variable home loan?

By now you are probably asking yourself what any of this has to do with “fixing” your home loan? Quite a lot-judging by the amount of times I get asked “what is the best home loan? Fixed or variable”. The broad answer for both of these questions is the same-its’ about the individual & their circumstances.

A Home Loan is a necessary long-term evil for most of us. I stress the “long-term” part of this. The majority of us will be dealing with a Home Loan for 20 or more years. Over that time we will travel the “road of life”. That road will come with pot holes, speed humps, traffic lights & freeways at various times. We will have different requirements at different times to navigate these. There will be times when we need to slow down. Similarly, there will be times when we want to speed up.

It is not unusual for the “road of life” to include a marriage, a home purchase & the arrival of a baby bundle of joy within the space of a “few kilometres”. It may be at times like these that the choice of a Fixed Rate loan is a good one. The knowledge of a fixed repayment amount for a fixed time provides comfort when the mind may be elsewhere. It’s just one less thing to worry about.

Conversely, there will be times in life where one wishes to take advantage of the freeway & the smooth road. In this case there may be opportunities such as the upgrade of a house, or the purchase the car or swimming pool. The flexibility that is offered by a variable rate mortgage may be preferable, with the ability to vary repayments as well.

The key in all of this is considering your own circumstances. In thinking about whether to go “fixed or variable”, consider your own needs first. How will your lifestyle change in the next 2-3 years? What are the things that keep you awake at night? 

Things to consider BEFORE you fix your home loan

Once these questions have been answered, then (& only then) should the interest rate be considered. A few things to consider before “fixing” your loan should include:

  • Are there any fees/charges involved in switching between fixed & variable?
  • Are there any restrictions on repayment levels within the fixed period
  • Are facilities available such as redraw or offset?

The cost of these fees may well negate the cost saving from fixing at an apparent attractive rate.

What about interest rates?

Now let us talk about loan interest rates. The first aim of a big bank will be to maximise returns for its shareholders. The 2nd aim is to attract customers with an attractive “sticker price”. The big bank will price its fixed rate loan based on the expert knowledge of its’ Economics Department & its’ statistical reports. It will have a very clear idea of whether interest rates are headed up or down. On this basis, the bank will not expose itself to significant long terms losses. What does all of this mean? It means that over the longer term, there will not be significant differences between fixed & variable rates.

Essential Points

  1. Review your lifestyle and consider whether you need the stability of a fixed rate for the next 1, 2 or 3 years
  2. Be sure to ask about fees associated with switching between fixed and variable interest ratse (they can be costly and might sway your decision)
  3. Consider if you will have easy and affordable access to a redraw or offset facility?
  4. Remember that over the long term, the difference between fixed and variable home loan interest rates is less significant that you'd expect

Want to know more?

And then we got to the final paragraph. Thank you for reading, listening & staying the distance. There is no best, or no right or wrong time to fix your home loan. It is dependent on your circumstances. Think about it in terms of the road of life. What road are you taking in the next 2 or 3 years? Are you taking the rough road or the smooth road? What keeps you awake at night? Once those questions have been answered the mine-field of Home Loan & Interest Rate choice will seem far easier to navigate.

If you'd like to speak to a lending specialist from our team, call 1300 622 278 Monday to Friday 8am - 5:30pm or request a call back.

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