Should I enter into a fixed rate home loan?
A lot of people are asking this question right now and there are no simple answers, as every household’s situation is different. With so much media and advertising around fixed rate home loans, it’s hard to make a decision.
From my perspective, when you are looking at a home loan product, you’ve got to think about your own personal circumstances. After all it’s your money.
Some people choose a fixed rate home loan because they want the security of knowing exactly how much they are required to pay each month. This might be important if you have other expenses which you need to consider.
On the other hand, a variable rate might be a better option if you want flexibility in your repayments. But you have to give yourself a bit of room for any ups and downs in repayments due to changing interest rates.
Then there is a third option, splitting your loan so that part of it is fixed and part of it is variable which means your repayments are partly fixed and partly variable. In this way you “hedge” yourself somewhere in between.
Really there is no right or wrong answer. What I suggest is that when you enter any financial transaction, you check your budget (or create a budget and then check it) and if you are at all concerned seek professional financial advice.
With a budget you should be able to work out what your financial tolerances are by using technology available to you online.
For example, run “what if” scenarios by jumping online and using home loan calculators, like ours, for different loan amounts and interest rates. Put some high rates in and put some low rates in to see what impact it will have on your repayments. Compare this with the budget you set up for yourself at the beginning of the process. You’ll soon find where your financial tolerance lies.
We’ve seen recently in Australia that when the RBA has put up rates, the ‘big four’ banks home loan rates haven’t followed exactly. Likewise when rates go down, they haven’t shown that they’ll go down by that precise amount either.
This is something that you should definitely pay attention to – how much is your lender really moving their rates by when they decide to change them?
If you have any questions check out the 'our loans' section of the website or feel free to call our team for a chat on 13 10 90.
By Marie Mortimer. You can follow Marie on Google+
Image credit: Lendingmemo.com