DECISIONS, DECISIONS. FIXED OR VARIABLE?
- Written by Melanie Toye, April 4, 2014
With interest rates at a low, the question is do you fix your mortgage or leave it variable? And if you do fix it, how long do you fix it for? 1 year, 3 years or more?
What you need to know about fixed home loans:
By fixing your home loan, you know exactly what you are paying. This makes your budget life a lot easier. And if interest rates do rise, you continue to pay at the fixed rate and in most cases, this is lower than the variable rate.
If rates do drop and your mortgage is fixed, you will inenvitably be paying more than the variable rate.
If you want to refinance your home loan with a different mortgage lender, or pay out your loan and your mortgage is fixed. There is generally a break fee. (Sometimes this can be in the range of a couple of hundred dollars to tens of thousands of dollars, if the fixed home loan has only recently been in effect).
You do have the option of splitting your loan. So part of the home loan is fixed and the other is at a variable rate. This does not have to be a 50/50 split. It could be 40/20 split etc. Having a split option, allows you to have a win/win situation. If you want to make extra repayments, you will not be penalised by fees. If part, or all of your mortgage is at a variable rate. And if you want to take advantage of the low rates, fixing part or all of your mortgage, may be a preferred option.
Ask around, see what other people are doing with their mortgages. The main point is, you must be comfortable with your decision. There is no right or wrong answer. Check the history of interest rates and consider where we are now and how you can best take advantage of the current interest rates, with your mortgage. Whatever you do choose, be sure to review your mortgage at least once a year. This way, you can take advantage of any low interest rate opportunities to fix your mortgage from a variable rate, or decide to unfix when the term is coming to an end. The choice is yours.
At Australian Mortgage Managers, we understand the mortgage concept can be quite daunting. Let us take out the unknown and give you the right information to assist you in making a choice.
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