Fixed rates are at their lowest in over three years – so is now the time to lock in?
If you’re looking for a wafer thin rate it’s hard to go past today’s fixed rates. Reserve Bank figures show the average 3-year fixed rate is currently 5.45% – the lowest since October 2009, and well below the average standard variable rate of 6.45%. For the record, Aussie’s 3-year fixed home loan rate is even cheaper than the RBA’s current average 3 year fixed rate.
The savings from a low interest rate are compelling. But locking in your home loan rate brings pluses and minuses that need to be carefully weighed up.
On the plus side…
The key advantage of fixing is protection from rising interest rates. No matter how market rates move during the fixed term, your repayments remain the same. This certainty means it’s also far easier to plan your household budget.
Fixed rate loans are also increasingly flexible. Many allow fee-free additional repayments (within annual limits) to help borrowers pay off their loan sooner.
…and on the downside
The biggest drawback of locking in your rate is the possibility of paying more than necessary if market rates fall further down the track. And if you decide to bail out before the fixed term expires you’re likely to face ‘break charges’. These are quite different from ‘exit’ fees (banned on new loans since July 2011), and the cost can be substantial depending on how market rates have moved.
Finally, if you want a home loan with all the bells and whistles, you’re likely to find more features with a variable rate loan. Just be sure you’re paying for features you’re likely to use.
If you’re still unsure whether now is the time to fix, have a chat with your financial advisor or maybe even your local Aussie Broker. You may be able to split your loan between fixed and variable rates, providing an each-way bet on where interest rates are heading.