Typically lasting between one to five years, the interest rate on a fixed-rate loan cannot increase during that time. Your payments won’t change during the fixed-rate period, no matter what happens to interest rates in the market.
Should I Fix My Home Loan In 2023?
Your home loan goals and financial situation will determine if you should move to a fixed rate. Some things to think about are listed below.
If You Fix Your Interest Rates Now
Benefits:
✅You won’t be affected by a rate increase until the end of your fixed term. The interest rate is expected to increase further in the near future and not decrease until at least the beginning of 2024, according to market analysts.
✅In the long run, you’ll save money because your monthly payments won’t change.
✅Payments are set on a monthly basis, making it easy to budget.
Risks:
❌Rate reductions won’t have any effect on you. Your fixed-rate loan could be in for some good news: lowering rates. You can’t avoid the higher rate in this scenario.
❌Extra repayments, redraw, and offset options may be unavailable to you.
❌If you refinance or return to variable rates before the end of your fixed-rate tenure, you will incur hefty break fees.
❌If you don’t take action before your fixed-rate period expires, your lender will automatically switch you to a variable-rate loan with higher payments.
If You Keep Your Variable Rate
Benefits:
✅You can cut costs on interest and payments if interest rates drop sooner than expected.
✅To lower your payments, you can refinance with minimal or no break fees ✅Additional repayment options and features, such as offset accounts, may become available to you.
Risks:
❌Make sure you can afford to pay back more if the rates keep going up. If you don’t, you could miss payments or even go into default.
Major Things To Consider With A Fixed-Rate Home Loan
Borrowers typically choose fixed rates because they anticipate future rate hikes and wish to plan accordingly. Lenders are boosting fixed interest rates because they expect variable rates to continue rising. Borrowers should calculate how much their monthly repayments would be at any fixed rate offered and consider if it is worthwhile to pay the higher repayment in exchange for cost certainty.
Before making any changes to a loan, borrowers should consider the following:
Trends in Fixed Interest Rates
Forward-looking pricing is used for fixed rates. Fixed rates may be more affordable than variable ones if the market forecasts a decline in interest rates. If the market anticipates rate increases to continue, fixed rates may be higher than variable rates.
Length of the fixed-rate period
Interest rate forecasts are a major factor in how most individuals decide on a fixed term. Reduced protection from interest rate increases is to be expected with shorter fixed-rate durations. If you’re willing to lock in your mortgage for more than five years, you may be able to save money, but you’ll lose some of your freedom of choice. Three to five years is a common choice.
Split Option
Split loans allow you to keep a portion of your loan’s interest rate flexible while fixing the interest rate on the remaining balance. To pay off your debt sooner, you can make repayments on your variable amount without paying any penalties.
Break fees
Evaluate the pros and cons of moving to fixed rates to make a wise choice. If you decide you want out of your fixed rate commitment early, you’ll have to pay large exit or break penalties.
Revert Rate
When the initial fixed-rate period of your loan expires, many lenders may automatically switch you over to a variable rate, which is typically substantially higher than the initial fixed rate.
Explore other features
Check with your lender to see if they provide any extras with their fixed-rate mortgages. Options like offset accounts, redraw accounts, split loans, and additional repayments can be useful.
We can help!
If you still have not decided to fix your debt, we can assist you in:
✅Finding the lowest possible interest rate by shopping around Weighing up the benefits of repairing your loan
✅Looking into the various hidden costs
✅In an uncertain economy, it’s always a risk.
That’s why before applying for a loan, it’s smart to consult a broker who can help you weigh your alternatives and choose which one is best for you! If you’re not sure if switching to a fixed-rate mortgage is the right move for you, we can help!
Talk to us now.