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 crisises 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!
You should only fix your rate if you are not going to sell your property, are not going to make extra payments and do not need the normal features offered by variable rate loans.
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.
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.
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!
Bookmark this page:
Add this page to your favorite social bookmarks sites:
