Q: I’ve seen some really low fixed interest rates being offered by some lenders, including some under 4%! Are they too good to be true? What do I need to be aware of when choosing a fixed rate home loan?
A: There are some very competitive fixed interest rates in the market, and more and more lenders are coming out with cuts every week. Some of the smaller lenders in particular are trying to boost their market share with seemingly attractive low rates under 4%.
You are right to be wary though. While they aren’t necessarily too good to be true, when choosing a fixed rate home loan you really need to look at the comparison rate and not just the headline low interest rate.
The comparison rate reveals a truer cost of a home loan, because it includes the interest rate and most of the fees and charges relating to a loan, combined into a single percentage figure.
It’s also important to look at what happens when the fixed rate ends, known as the ‘revert rate’, unless you plan to refinance at the end of the fixed term.
I believe, along with many economists, that there are probably at least one or two more rate cuts coming, so it might also be worth considering whether it’s too early to fix. Competition is hot and should continue to heat up especially if the RBA cuts rates further, so it’s very possible that we will start seeing more interest rates starting with a 3 over the coming months.
You also need to remember that a home loan isn’t just about the interest rate. There is so much more to consider when choosing the right home loan for you, such as:
- All of a loans’ features, e.g. can it be interest only, can you split the loan into fixed and variable portions;
- Loan flexibility, such as the ability to make additional repayments or pay off your loan sooner;
- Offset and redraw accounts; and
- Application and ongoing fees and charges.
To get the best of both worlds you can choose to split your mortgage into fixed 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 the home loan that’s right for you.
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