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To fix or not to fix?

In our many discussions with home buyers in recent months, not to mention local homeowners who are weighing up their options for the future, one of the questions that keeps popping is whether this is the right time to fix your interest rate on your home loan.

Now, obviously I’m not a financial guru, and it’s not my role to advise people on their mortgage, but here’s a few general thoughts for anyone considering changing their home loan.

Firstly, there is no doubt that many lenders, including the Big 4 Banks, are offering some of the most attractive home loan deals they’ve ever had. In some cases, homeowners are able to fix their rates below 2 per cent for the next four years. So it’s understandable that some advisors are saying that the current lending environment is a once in a lifetime opportunity, with average fixed rate loans currently set well under the average variable rate.

But before you race out to lock-in your new deal, keep in mind that fixed rate loans will not suit everyone’s ci0rcumstances. For example, fixed rate loans tend to be far less flexible than their variable equivalent. Most fixed rate loans do not allow you to make extra payments, the don’t allow you to have an offset account to speed up your repayments, nor do they allow you to redraw when you are ahead on your repayments. In this case, getting ahead of your loan, particularly if you are planning on taking time off to start a family, can be difficult.

One option, of course, is to split your loan into two, so that part is fixed, and part is variable. But setting up this strategy requires careful planning and should not be undertaken without good advice.

Another fact to keep in mind is that just because some lenders are offering fixed loans at under 2 per cent does not mean that they offer them to everyone.

Another factor that is causing some borrowers to hold back from fixing their loan is that there is still a possibility that interest rates could fall further still! As unlikely as it may sound, some economists are saying that the Reserve Bank could still act if the economy does not respond to the current stimulus packages from State and federal Governments.

With all of the above factors in mind, the best advice I can offer anyone is to talk to an experienced and independent mortgage broker before you make any decisions, and to think carefully before committing yourself to any new loan. And if you need an introduction to a trusted broker, don’t hesitate to give us a call at Barry Plant Thomastown on 9466 3233.


Con Constantinou

Barry Plant Thomastown