With interest rates at an all-time low, taking the option of locking in an interest rate on your home loan to guard against possible future fluctuation may be attractive. However, it pays to know the ins and outs of fixed-rate loans before committing to one.
When purchasing a property, borrowers can decide between fixed-interest loans that maintain the same interest rate over a specific period of time, or variable-rate loans that charge interest according to market rate fluctuations.
Fixed-rate loans usually come with a few provisos: borrowers may be restricted from making large additional repayments during the fixed term and they can face hefty break fees for paying off the loan early.
However, locking in the interest rate on your home loan can offer stability, and can be particularly rewarding and flexible when you “split” a loan as part variable and part fixed.
Fixed rates are locked in for an amount of time that is prearranged between you and your lender, with the most popular fixed rate terms being 2 or 3 years.
Further to this, fixed-rate loans can also be pre-approved. This means that you can apply for the fixed-rate loan before you find the property you want to buy. You can also apply during the pre-approval for a “rate lock” which locks in the fixed rate for the time of the pre-approval for between 60 and 90 days, while you search for your new home. Even if rates do go up between when you have a loan pre-approval and finding and then settling the loan and moving in, you have guaranteed the fixed rate.
Pre-approval helps give you a clear maximum budget and makes house hunting a lot less stressful. Knowing that your potential lender will offer a fixed-term interest loan grants further peace of mind for those borrowers looking to budget precisely rather than be susceptible to rate fluctuations.
Whether you are looking to buy, or have an existing mortgage and are thinking to fix, it is both easy and smart to get a second opinion from an independent mortgage professional. Mortgage advice is free to you and can save you thousands…that’s the reason why more than half of all loans are now “brokered” by a mortgage adviser acting on your behalf, giving sound advice, and accessing all areas of the market not just one “brand”.