Is it time to fix my home loan rate?

Fixed-rate home loans, are they the right choice?  This is a question that regularly comes up when I am speaking to clients.

Fixed-rate home loans

Unfortunately, I can’t answer this question with a simple yes or no. A fixed-rate home loan is a right choice for some people but not others.

To determine if a fixed rate home loan is right for you, the best place to start is to look at the features of most fixed-rate home loans and compare these with the features of variable rate home loans, which are by far the most common type of loan in Australia.

A variable rate loan is very flexible.  All variable rate loans will allow you to make unlimited additional repayments without penalty and to pay out the loan in full at any time, also without penalty.  The cost of closing a variable rate loan will usually be less than $500.

Fixed-rate loans don’t offer this type of flexibility.   If you have to break a fixed-rate loan for any reason, including sale of the property, during the fixed-rate term you can incur break costs.  These costs may be many thousands of dollars and cannot be calculated at the time of taking the fixed-rate loan out as they are dependant on what happens to fixed rates in the future; as well as how long you have remaining on your fixed-rate term.

So given the lack of flexibility of fixed-rate loans why would someone take one out?   The main benefit of a fixed-rate loan is that it provides for the certainty of repayment over the fixed-rate period. For some people, they want that surety that this provides.

In the current market (as at September 2021) fixed rates, especially the 2 and 3 year fixed rates are lower than the variable rates which are currently being offered.  So for people who have no intention of selling and who, in the short term, have other priorities over paying down their home loan, they may make the decision to fix some or all of their home loan, given that fixed rates are lower than the variable and are low by historical standards.

Still not sure.  You can read here further information about fixed rates loans on the Australia Government Money Smart Website.

If you would like to discuss your home loan and obtain some assistance in deciding if a fixed-rate home loan is a right choice for you, then give Margaret Godfrey, mortgage broker Newcastle a call on 0451 471 061 or send her an email at mgodfrey@smartline.com.au