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If you are a mortgage holder, you are probably keeping a close eye on Fixed Rate home loans and how these changes will effect your monthly budget.

A fixed interest rate home loan has a fixed interest rate period of 1 to 5 years. Before you change over to a fixed rate or review your home loan situation it is important to understand that there are certain rules and conditional associated with this type of loan.

The main items to consider are:

So what is the Fixed Rate at the moment?

Currently, lenders are pricing the fixed interest rates much higher than the variable rate home loan. We have seen a significant rate increase on fixed rate home loans with all lenders.

For example, a 3 year fixed rate home loan is sitting anywhere between 4% and 5%. If we were reviewing with one of the Big 4 Banks, we would be reviewing with the potential rate of 4.79%.

As it stands, variable interest rates are priced much lower than the fixed rate. A variable rate at the moment will be calculated at around 3% depending on the type of home loan, product and the lender.

With the current interest rate increases, is it time to switch to a fixed rate?

Things to consider are:

  1. Goals with the security property – are you going to be looking at selling or doing something to the property where you may have to borrow more money? You don’t want to be having to pay exit fees on the current loan if it is fixed.
  2. Additional Repayments – with the limits on additional repayments, be sure to review your ability to make additional repayments if this is what you want to do. You don’t want to be at your budget limit during the fixed rate period.
  3. Review the costing’s on variable interest rates vs the potential fixed rate. Review both repayments and see what the difference is and then think about whether you would like to have a lower repayment or a set repayment for a period of time.

Below is a repayment table so you can see the potential of home loan repayments over a 25 year loan term:

Loan Amount$500,000$500,000
Interest Rate2.79%4.79%
Monthly Repayment$2316$2862
Difference Between Repayments +$546

Knowledge Is Power:

What we have learnt over the past few years is that things can change quickly. Interest rates are on a upward trend and moving swiftly. There is nothing to say that if things change with the local economy or any regulatory change that the Reserve Bank Australia may have to reduce interest rates.  If this is the case, you may find yourself locked into a higher fixed rate, which is one of the inherent risks of this type of product. 

Be sure to think of your financial position when reviewing your home loan and the potential of current fixed rates and the risks associated with fixing your home loan.

Need more details?

If you need some assistance get in contact with a Launch Finance Broker so we can help you navigate through these changes and advise you of your best options moving into the future. 

Contact (08) 9367 4222 or email [email protected] and our award-winning team can help you today.