4 Things to Consider Before Fixing Your Home Loan’s Interest Rate

Home loans and interest rates may feel confusing at the best of times, but when the news is making predictions left, right, and centre, you might find the whole shebang more puzzling than normal.

 When it comes to mortgages, borrowers may wonder whether to choose a fixed and variable interest rate. Bearing in mind the current chatter surrounding interest rates, there are four things to consider before you rush out and fix your home loan’s interest rate.

1. Why should you fix your home loan’s interest rate?

So, the main reason you’re probably considering fixing your home loan’s interest rate is for the certainty of knowing your repayments are set for a while.

This option may work well for you if you’re uncomfortable or uncertain about meeting the repayments for your home loan if interest rates were to rise. But it’s also worth considering whether a fixed rate could be higher than a variable interest rate. During these tricky times it may be worth speaking to your mortgage broker about your options.

2. Is your fixed home loan flexible enough?

Forget yoga – it’s unlikely to help with this one. You may feel a bit better if you lock in a fixed rate, but it’s also worth keeping in mind that fixed rate loans aren’t always that flexible.  

When looking at fixed home loans, be sure to ask questions about whether you’re able to make repayments over and above the normal repayment schedule as many fixed loan products won’t allow it.

Also, if you’re thinking of refinancing, check out the costs involved as they may possibly be a bit lower with a variable loan.

3. How long should your fix your interest rate?

If you're looking at locking in a fixed interest rate, you may be planning to do it before any potential rate rises occur so you've got some certainty for the foreseeable future.

Usually, fixed term interest rates are between one and five years. They could possibly be up to ten years with some lenders, but that’s a question for your mortgage broker. While you may feel a bit more secure with fixing your interest rate for a while, it could come with a higher interest rate than the variable rate.

4. How much of your interest rate should you fix?

Here’s some good news – you might be able to fix the interest rate a certain percentage of your total home loan. Of course, it depends on your lender and the level of flexibility they’re willing to offer.

If you wish for some certainty with your interest rate but don’t want to be locked into something that could possibly cost more in the long run, then fixing some of your home loan might be an option.

So, get your calculator and spreadsheets out – it’s time to figure out how much you may be able to pay down on the variable portion of your mortgage through making some additional payments. Once you’ve crunched the numbers, you should have an idea of what percentage of your home loan you could consider fixing. Alternatively, chat to your home loan specialist for some help.

Thinking about fixing your interest rate but not quite sure how to go about it? Sounds like you need to chat with Pania about your options.

Disclaimer: This is general information only and is subject to change at any time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.