Competition among lenders is fierce and there is ongoing uncertainty over interest rate increases. Fixing the interest rate on your home loan could provide the answer to your insecurity.
However, there are a number of factors to consider when determining whether fixing is the best option for you.
How do fixed rates work?
Homeowners can choose to opt for a fixed rate on their home loan for a defined period, usually one to five years, after which the rate switches to the standard variable rate.
Reasons to fix
Fixed rates particularly appeal to borrowers who would feel the financial pressure from any increase in loan repayments. A fixed rate provides peace of mind and helps to forecast your monthly budgets.
Reasons not to fix
Fixed rate loans can penalise borrowers who make additional repayments (including early pay-out), so they can work out to be a more expensive product in the long run.
Economic forecasting is notoriously unreliable and over a five year period interest rates may fall as well as rise leaving you locked into a higher rate than the standard variable.
If neither of these options appeal there is a third way that will allow you to take advantage of the low fixed rates currently available and still retain some flexibility on your loan. A split loan will enable you to fix a portion of the loan, but the remainder will be at the variable rate. The fixed rate will provide a degree of certainty in your repayments, may minimise your exposure in the event of a rate rise, but by keeping a portion at the variable rate you are able to make extra repayments without incurring penalties.