March 09, 2021 by Samantha Korzeniewski
The Reserve Bank may have kept the official cash rate on hold but many lenders have announced rate hikes of their own. You may be wondering if now is the time to fix your home loan rate.
The home loan market just became more complex, with home owners receiving mixed messages in terms of interest rates. The Reserve Bank of Australia has kept the official cash rate steady at 1.5% for over two years. However, faced with higher funding costs, we’ve seen a groundswell of lenders announce independent rate rises of their own. It started with a handful of smaller lenders earlier in the year, and by late August, several of the big banks including Westpac, ANZ and the Commonwealth Bank, had all lifted their variable home loan rates.
These so-called ‘out of cycle’ rate hikes are especially unsettling for home owners as they can seemingly come out of the blue. Moreover, in the past, smaller banks have tended to follow the lead of big banks when it comes to rate hikes. So it’s fair to say anyone with a variable rate loan is vulnerable to possible rate rises.
A fixed rate home loan offers certainty
There is plenty home owners can do in this situation. You don’t simply have to accept higher home loan repayments. One strategy is to fix your home loan rate, and there are certainly some very competitive fixed rate home loans available offering a variety of fixed terms.
In fact, fixing has a lot going for it. Your rate – and repayments – are locked in for the term you select, so you’re free from concerns about market rates rising. And we’re increasingly seeing fixed rate home loans that offer similar features to variable rate mortgages. Many offer the flexibility to make extra repayments, and a few even offer redraw and offset.
Understand the downsides of fixing
A potential drawback of switching to a fixed rate home loan, is the possibility of being hit with ‘break costs’. These can apply if you want to bail out of the loan early, something that can happen if you want to refinance before the fixed term ends. This highlights the need to choose your fixed term with care.
The other factor to consider is what happens when the fixed term expires. In most cases the rate will revert back to the lender’s variable rate. So don’t just focus on the fixed rate you’re paying now. Take a look at whether the lender also offers a competitive variable rate. If that’s not the case, you could find yourself paying more than necessary further down the track – or face the need to refinance the loan sooner than you’d like.
Call today for expert advice
In today’s uncertain rate environment, a fixed rate home loan brings certainty to your loan repayments. And that’s a plus. But it pays to be sure fixing is the right decision for you – and that the loan you select will help you achieve your property goals.
Talk to us for expert support finding a fixed rate home loan that lets you tick all these boxes.
