Q: I have a $200,000 mortgage at a variable rate of 5.14% and I see fixed rates are now under 5%. Should I fix now?
A: With interest rates at their lowest levels in recent years, fixed rates can represent excellent value. Aussie Select’s own two year fixed rate is now just 4.74% (comparison rate 4.96% p.a.)*, and there are lots of great offers available from other lenders as well.
Along with the current low interest rates, fixed rate loans also provide certainty about repayments which is ideal for anyone on a tight budget. It also protects you against rising interest rates, which some experts predict could happen later this year. Combined, these are very attractive benefits definitely worth looking into.
But there are some limitations with fixed rate loans that you need to be aware of:
- They are typically inflexible in terms of repayments; many don’t have an offset facility or allow extra repayments;
- This may seem obvious but they lock you in so even if variable interest rates fall your rate stays the same; and
- They usually have penalties if you break the fixed term early.
To get the best of both worlds you can split your mortgage into fixed rate and variable portions. This lets you combine some certainty about repayments with access to changing competitive rates.
If you’re considering fixing all or part of your loan you should speak with a mortgage broker who will not only be able to tell you more about the features and flexibility of fixed rate loans, but also compare the different rates and loans available to find one suited to you.
*E.g. Aussie Select Basic 2 Year Fixed Rate has an interest rate of 4.74% p.a. with a comparison rate of 4.96% p.a., which is available with a loan to valuation ratio of 95% (including LMI). At the end of the fixed term, rate reverts to the discounted variable rate. Applications are subject to approval. Conditions, fees and charges apply. Rate is correct as at 06/05/14 but subject to change. Please check the applicable rate is still correct with your Aussie Mortgage Broker. The comparison rate above is based on a home loan of $150,000 for 25 years. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. If you have any questions call 1300 44 55 66 and talk to an expert Aussie Mortgage Broker. For Aussie Select Products credit services are provided by AHL Investments Pty Ltd ACN 105 265 861, (“Aussie”) Australian Credit Licence 246786 and its appointed credit representatives. Credit is provided by Residential Mortgage Group Pty Ltd ACN 152 378 133, Australian Credit Licence 414133.
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