On the back of lenders’ decision to independently raise variable rate home loans last October and growing uncertainty around what the RBA will do with the official cash rate this year, there has been a resurgence of demand for fixed rates among mortgage holders.
If you want a little extra security when it comes to your repayments and are considering a fixed rate home loan, these are my top tips to make a fixed loan work for you:
With plenty of competitive fixed rates on the market, opting to fix a portion of your home loan may be a wise move. In fact Mozo found lenders, on average, decreased 3-year fixed rates by 27 basis points last month alone.
On top of a competitive rate, a split loan gives you the best of both worlds with the comfort of knowing exactly what your loan repayments will be as well as the opportunity to capitalise on any future rate cuts.
When choosing a fixed home loan look into other aspects of the loan –not just the interest rate. Many lenders offer fixed home loans with extra repayment facility where you can reduce your interest payable by making additional repayments up to a certain amount over the fixed term.
Another feature you may consider with a fixed home loan is an offset account, which works to reduce the interest you’ll pay over the life of the loan. It’s a rare find in the fixed home loan market but some lenders do offer a 100% offset account for the period of the fixed term, so keep an eye out for this interest saving feature.
If you opt to fix a portion of your home loan make sure you’re in it for the long term because you’ll be up for hefty break costs should you ever need to terminate the loan before the fixed period ends.
Be ready to assess your home loan at the end of the fixed rate period. Once the fixed term has ended the interest rate will generally revert to a variable rate that may not be as competitive as the rates charged by other lenders so shop around the home loan market to ensure you’re getting the best possible deal.
The end of the fixed period is also an optimal time to try your hand at negotiating with your lender for a better rate on your home loan. In a recent mystery shop, Mozo staff posing as borrowers haggled up to 1.25% off the standard variable rate as well as snagged up additional incentives from lenders including cash back offers.