While a much smaller portion of homeowners go for a fixed rate, they are common for FHB’s, those starting a family and others who fear interest rates may skyrocket.
But what happens when the fixed rate term expires? Do you fix again? What do you need to tell your bank?
Normally when a fixed rate is due to expire, your bank will send you a letter confirming the date the loan will be switched over from the fixed interest rate.
Aussie Chapel Hill and Forest Lake franchisee Tom Mewing advises his customers to start doing their homework, at least eight weeks before the date the loan is set to switch.
“It’s important that homeowners do some research on what is out there in the market as the fixed rate normally switches to the lender’s standard variable rate, which is sometimes up to 1 per cent higher than what is available in the market,” he says.
Mr Mewing said it pays to speak to a broker, as they have access to hundreds of products from many different lenders and will be able to advise which product may be most suitable.
“Homeowners need to ask themselves, do I fix again? Did it work for me last time? Do I think my situation may change in the next few years?” he said.
“For customers looking to make additional repayments on their loans, fixing is not the best idea as there are limits to how much extra you can pay.”
One customer, who has been on a fixed rate of 6.69% for five years and that term recently expired, has decided to stick with a variable rate.
“The main reason we fixed is we knew we wanted to have another child and we wanted the security of knowing what our repayments would be,” she said.
“During that five years, variable interest rates skyrocketed to over 9 per cent and then they plunged during the GFC to under 5 per cent so we really did see two extremes.”
“Fixing worked for us, because I was on maternity leave for part of the period. This time around, we will probably stay with a discounted variable rate as our financial situation is more stable.”
TIPS FOR FIXED
- Speak to a broker
- Do your homework and see what is out there on the market
- Ask yourself whether you want to fix again
- Do you want to make extra repayments
- Are you planning a family or do you think you may be out of work