Fixed interest rate home loans have a reputation for being restrictive and inflexible, but they now offer a lot more benefits than they used to.
One of the benefits of having a fixed-rate home loan is that they are not subject to the same fluctuations as variable-rate loans and borrowers know how much they will pay each month.
However, these loans can be inflexible, with borrowers unable to make extra payments if they want to.
The good news is that fixed-rate home loans now offer more benefits than they used to. Not only do you have the certainty of knowing how much you need to pay each month, but you can now find fixed-rate loans that give you the ability to pay more or that allow you to link the loan to an offset account to reduce the amount of interest you have to pay.
While fixed-rate home loans have shown an increase in popularity in recent years, variable home loans still lead the way and currently account for more than two thirds of the market.
A growing number of home owners, however, are opting for the best of both worlds by pairing a fixed-rate portion with a variable-rate portion. These ‘split-rate’ loans offer additional flexibility, plus a welcome level of certainty.
Knowing for certain how much you have to pay each month is the biggest benefit of having a fixed rate, especially for first home buyers, who are usually entering into their first major financial commitment.
They know what they have to repay each month, irrespective of whether interest rates go up or down.
By splitting the loan to include a variable portion, you are essentially hedging your bets that interest rates will drop again or that your financial position may change and you will require that additional flexibility.
Fixed rates are also available on construction loans. There is a misconception that you can’t get a fixed rate while you are building, but a select number of lenders allow it.
Non-bank lenders or mortgage managers often compete with the major banks in the area of fixed-rate loans, offering more flexible terms.
With interest rates at a record low, a fixed rate should definitely be among the options you consider, whether you are taking out a new home loan or reviewing an existing one.
Be aware, however, that if you sell your property or refinance your home loan during the fixed-rate term, early repayment penalties may apply.
With loan types and terms changing from lender to lender, home buyers who engage a licensed and reputable mortgage broker are far more likely to find the most suitable home loan and lender.
There’s much more to choosing the right home loan than simply picking the one with what appears to be the lowest rate.
Don Crellin is the Managing Director of Resolve Finance, an award-winning mortgage brokerage and leader in the home finance field. Resolve Finance is part of the Alcock Brown-Neaves (ABN) Group and, on average, help over 200 homebuyers into their home each month; financing over 23,000 homes since establishment in 1997.
Don brings a wealth of knowledge and experience to the company having over 25 years in the mortgage industry, spanning across Australia and New Zealand.