If you are looking to purchase a home or considering refinancing, one decision you’ll need to make is whether to fix your home loan or not.
It’s important to consider both options and align it with your financial goals and needs. Both options have pros & cons and below are some things to think about when deciding.
- Interest rate rises won’t impact you if they rise above your fixed rate, as you have agreed to remain on the same interest rate for the fixed term.
- Budgeting can be much easier as you have the certainty of knowing what your home loan repayments are during the whole term that your loan is fixed. This will allow you to budget around your loan repayment commitments.
- The above advantages are further supported by most lenders allowing you to fix your home loan for 1 to 5 years. This gives you additional flexibility when aligning your decision with your future plans.
- If the interest rate decreases below your agreed fixed rate during the fixed term, you won’t benefit from the potential extra interest savings available.
- Most lenders have limitations on the extra repayments you can make during the fixed term and this can restrict you if you’re wishing to pay off your home loan sooner.
- Redraw facilities are generally not available on fixed rate loans, meaning that any extra repayments you make cannot be accessed until your fixed term has ended.
- Break fees may be payable if you change or pay off your home loan within the fixed rate period.
- A variable rate loan generally comes with more features including the ability to redraw any additional repayments you’ve made. This also enables you to link an offset account to save on interest costs.
- Usually extra repayments can be made without any penalties, this is great for when you wish to get ahead and pay off your home sooner.
- Variable rate loans can be easier to switch if there are other products or offers available that are presenting a better deal.
- Interest rates can fluctuate both up and down. Usually any interest rate movement occurs around the same time that cash rate movements occur however, the banks can increase or decrease interest rates independently. This means you need to be prepared for changes to your interest rate and loan repayment amounts.
- Budgeting can become more difficult as the amount of your loan repayments can increase when interest rates increase.
Splitting your loan – part fixed and part variable
Splitting your loan between fixed and variable allows you to take advantage of both loan types. Most lenders will allow you to split the loan and the split itself can be tailored to your specific needs.
For example, you may wish to have most of your home loan fixed therefore, you could choose to split your loan 80/20 or 90/10 as fixed/variable… the choice is yours.
Ultimately, there will always be risks associated with both fixed and variable home loans and the choice you make should take into account your future plans and goals.
Contact the Seek Financial team today to discuss your options.
The above information is general in nature. It has been prepared without taking into account your objectives, financial situation or needs.