Fixed rate loans
How do you get the best fixed rate?
There are three secrets to making sure you get the best deal on your fixed rate loan. Unlike variable loans, fixed interest loans need to be carefully chosen as you are committed to that lender for the fixed rate period. So what is it that you need to take into account when choosing your loan?
1. Knowing when to fix
Choosing the right loan is a great start, but what is the point if you lock yourself in when rates are high only to see the reserve bank cut interest rates? By fixing when the economy is running smoothly and interest rates are cheap you will protect yourself from credit crises and volatility.
Unfortunately most Australians fix when rates are high! This is because of the fear that rates are going to go higher, not out of a rational decision to look at the overall term of the loan and what rates are likely to average over that entire period. Remember 3 or 5 years is a very long time!
2. Choosing the right lender
Many people just go straight to their bank and then try to negotiate the best rate they can. Unfortunately this strategy is flawed because unlike variable rates, the major banks and other lenders have completely different fixed rates!
Why is there so much variation? Because each lender has their own opinion about the likely direction of interest rates in the future and so prices their loans with different rates. By using a mortgage broker you can be sure to get the absolute best deal available on the market!
3. Knowing if you should even fix at all!
It never ceases to amaze me how many people apply for a fixed rate loan who would be better off with a variable rate. Why is it that some people are better off with variable rates? Because fixed rates tend to have high exit fees called “break fees” or do not allow you to make large additional repayments. A fixed loan is like a fixed contract, if you break it then it is going to cost you a small fortune!
DO NOT fix your rate if you are planning to:
- Sell your property,
- Make a large lump sum repayment,
- Refinance your home loan,
Flexible fixed rates (see below) or splitting the loan to be half fixed & half variable may help if you are planning to make extra repayments, however this will not help if you are selling or refinancing as you would still incur large exit fees.
Find the cheapest fixed rate loan
Our mortgage brokers have specialised software that can quickly find and compare the cheapest fixed rate mortgages. Please call us on 1300 889 743 or enquire online and we will complete a needs analysis, work out which lenders you qualify with and then can give you several options to choose from.
Will interest rates go up or down?
You may notice that the media is constantly reporting that interest rates are either going to shoot into the stratosphere or plummet down to record lows. They regularly look for economists to make a prediction on interest rates because these articles grab the attention of most Australians.
The truth is that nobody knows what will happen with interest rates in the future. Not even the Reserve Bank. In the past we have seen many predictions on interest rates which have turned out to be incorrect.
If you choose to fix your interest rate, then please base your decision on sound economic logic or on your own personal preferences, don’t listen to reports from the media.
Please keep in mind that if you fix your home loan and then interest rates drop, you cannot switch back to a variable rate without paying a large exit fee.
What is “Rate Lock”?
If you apply for a fixed rate home loan & the bank changes their fixed rates between the time that you apply for the mortgage & the time that your loan is advanced, then you will get the new fixed rate. You can pay a fee which ranges from $395 to $695 to 0.15% of the loan amount to lock in your rate at the time of application. That way you are protected from rate rises.
You cannot rate lock a pre-approval and rate lock is only available for a maximum of 90 days (depending on the lender).
Discount my fixed rate!
The good news is that due to the high competition in the fixed rate market, there are some incredible discounts and special offers promoted by Australian banks. In fact some lenders occasionally run special discounts where they are giving you such a low rate that they hardly turn a profit!
Call us or enquire online to find out what discounted fixed rates are available now!
New flexible fixed rates!
Traditionally, fixed rate loans lack the flexibility offered by other home loan products, paying out the loan early will cost you dearly with break fees, and switching usually incurs with another break fee. However, with new products coming out in the market, some of our fixed rate loans now offer features such as:
- Extra payments without penalty
- Redraw facilities
- 100% offset facilities
- Low or no monthly account keeping fees
- Interest only repayments
It is important to remember that fixing your rate means commitment for a period beyond anyone’s prediction. To some extent it is a gamble, but at the very least, fixed rate loans provide insurance against interest rate rises that might put your home at risk.
Interest in advance home loans
Want to get some great tax deductions this financial year? Pre-pay your interest in advance on a fixed rate loan! We know lenders that have the most competitive interest rates and can offer you professional discounts as well. This loan type is suitable for property investors and those refinancing. Please read our page to find out more.
Introductory rates
Did you know that you can get a guaranteed interest rate for between 6 months and 3 years that is fixed at a discount below the bank standard variable rate? Here you can find out if this type of loan is suitable for you and find out which lenders offer the best honeymoon rates.
1 year fixed rates
1 year is generally the minimum period that you can fix your interest rate for. The good thing is that most lenders offer initial discounts upon switching to a 12 month fixed rate home loan. However, it is important to note that the most competitive interest rates are generally offered for terms of more than 1 year.
3 year fixed rates
3 years is generally considered to be the shortest term fixed rate worth applying for. Most people choose to fix for three years when rates are heading upwards, thus protecting themselves in the medium term
5 year fixed rates
5 years is considered to be a medium term fixed rate and is popular among borrowers that want the security of a fixed rate but not the long term commitment to one lender that is required of the longer term fixed rate loans.
10 year fixed rates
A 10 year fixed home loan is considered to be a long term fixed rate and is used when the economy is going well to lock in the good rates for the future. Fewer lenders are able to offer 10 year fixed rates due to their funding constraints. Flexible fixed rate loans with extra repayments and redraw cannot be locked in for such a long term. Because of this most people who fix for 10 years split their loan to be part fixed, part variable.
15 year fixed rates
15 years is the longest possible fixed rate term for residential home loans in Australia. Most people who fix for 15 years are long term investors or conservative home owners. 15 year fixed rates lack flexibility so must be used with caution to ensure that they don’t do more harm than good.
20 to 30 year fixed rates
20 year and 30 year fixed rates are not available in Australia. Find out how to get the benefits of a 30 year fixed rate by using shorter term fixed rates and clever planning.
Get the right fixed rate advice…
We recommend that you should always keep your financial goals and priorities in mind when making a decision on your home loan and seek independent financial advice before fixing the rate on your home loan. Talk to us if you would like a quote on a fixed rate home loan or if you would like to find out if fixed rates are suitable for your situation!
