Is it the right time to fix your interest rates?

When it feels like the world is spinning into utter chaos, there’s only one thing you can do: keep calm and secure your finances. There’s a silver lining to the hectic times we’re living in and it’s the record low interest rate. 

For people buying a home or paying off a mortgage, interest rates matter. If it goes up, you could be paying more for your mortgage and if it goes down, you’ll have more in your own pocket. 

To fix or not to fix – many borrowers are scrambling their brains over this question to ensure they could save thousands of their hard-earned dosh. At the same time, lenders are competing with each other to lock-in borrowers right now via fixed rates. 

Borrowers are attracted to the certainty of a fixed-rate offer thinking this near-zero interest rate isn’t going to last forever. To make life easier for first home buyers, it’s actually advisable to seize this opportunity to fix, to organise their budgets easily and stay on top of their repayments. They will have a set goal to save towards while having security.

However, there are a few things you need to consider before you lock in the fixed rate:

1. Fixing your home loan can either protect you from sudden interest rate hikes or restrict the flexibility of your home loan. 
2. The lender locks you in too. It means you can’t walk away prematurely without paying high exit fees. This is their way to guarantee margins for a period of time. You’ll be their borrower for the years ahead. 
3. Say if you have a pay rise or even inheritance, you won’t be able to make large extra repayments and likely be penalised for trying to pay down your loan balance. 
4. When you’re in a fixed-rate period, you are discouraged from selling, refinancing, renovating or building using the equity you have on your property because of the high exit fees. 

If it sounds like too much of a commitment, you can always go for a split loan.  Try fixing only a portion of your loan for a period that best suits you (around 3 to 5 years is ideal). You’ll have the stability that a fixed rate provides and also the flexibility only a variable rate can give. You can make unlimited additional repayments into your variable rate portion helping to reduce the overall interest costs and make further interest savings by linking an offset account. 

Final words

If you’re super keen to be a homeowner this year, take it slow and plan ahead all the expenses involved: interest rates, stamp duty, legal fees, loan set-up and application fees. If you need help dealing with all those numbers, a mortgage broker can help you work out the best options for your case. By asking lots of questions and seeking out people who know their stuff, you won’t get a bum deal when it comes to a home of your own. There are also government grants and financial programs that could help you save. After all, every little bit helps!