- Fix their whole home loan
- Fix half of your home loan
There is a third option which most people will realise, and it is the option that we chose. That option is to keep the whole home loan as variable. Currently, the world's interest rates are at an all time low. Australia by comparison has a very high interest rate. Whilst I do not work for a bank or mortgage broker, a casual read of the daily news gives me a feeling that interest rates are not going to go up too soon.
Usually people will fix their interest rates because they are afraid that they will not be able to service their interest repayments IF interest rates go up. In a time when interest rates do not seem to be heading up soon, fixing your interest rate may have the opposite effect. Whilst everyone else's interest rate drops, you are stuck on 5.50%.
Also when you fix your interest rate, you cannot make EXTRA repayments during that period. Let's say you fix your interest rate for three years and you have some extra cash to reduce your loan. You can't use that extra money to reduce your loan!
Variable rates usually allow you to put some extra money in during good times and redraw that amount when an emergency comes along without too much drama. So, by watching Today Tonight, I was wondering whose press release they took and ran with for that story.
1 comment:
One of the most important considerations in choosing to fix your loan shouldn't be just to save money, but to be able to better manage the household budget. Choosing to fix just because rates are low is a bit of a gamble against the market in many instances and shouldn't be the sole purpose for fixing.
It's also a bit of a fallacy that you can't make extra repayments to a fixed rate. Whilst it's the case with a few lenders most will allow you to make extra repayments up to a certain limit (i.e. some will allow $500 extra per month whereas others may say $10,000pa). One thing that is common with most lenders and fixed rate loans though is that you won't be able to redraw extra repayments like you can with a variable rate.
One thing we can definitely agree on is that it's terrible to take mortgage/finance recommendations from Today Tonight!
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