Fix the mort­gage rate

Sarah Daly weighs up the pros and cons of switch­ing to a fixed-rate home loan.

The Advertiser - Real Estate - - Front Page -

LENDERS are cut­ting fixed in­ter­est rates and Mort­gage Choice re­ports that the av­er­age three-year fixed term in­ter­est rate is at its low­est since Oc­to­ber, 2009. So is now the best time to switch and lock in a fixed rate?

Mort­gage Choice spokes­woman Kristy Shep­pard says the in­ter­est rate re­duc­tions on fixed-term home loans is an at­tempt to at­tract cus­tomers.

‘‘More than a third of our lender panel has reduced in­ter­est rates on some or all of their fixed-term home loans,’’ she says.

‘‘They are re­act­ing to changes to their fund­ing costs, sub­dued home loan de­mand and un­cer­tain eco­nomic con­di­tions by repric­ing fixed rate loans and con­tin­u­ing to bring out at­trac­tive loan of­fers in the hope of boost­ing the flow of cus­tomers walk­ing in their doors.’’

Ms Shep­pard says the best advice for con­fused mort­gage hold­ers is to con­sider exit fees and other fac­tors of the loan, such as lender ser­vice, how long it will take to be ap­proved, and ini­tial and re­cur­ring costs.

‘‘If you’re con­sid­er­ing switch­ing loans and/or lenders, you must re­mem­ber that the in­ter­est rate should not be the driv­ing force in your de­ci­sion,’’ she says.

Black­fish Fi­nance di­rec­tor Mark Love­day says although switch­ing to a fixed rate may seem like an at­trac­tive op­tion at the mo­ment, it i s i mp o r t a n t t o c o n s i d e r t h e big­ger pic­ture.

‘‘The great thing about the lower fixed rates is that it is giv­ing buy­ers some con­fi­dence and it is usu­ally a sign that the Re­serve Bank rates will go down, too,’’ he says.

‘‘It’s important to keep in mind that fixed rates do come with their prob­lems and as a com­pro­mise, a lot of our clients are choos­ing split loans so they have the se­cu­rity of a fixed rate with the pos­si­bil­ity of dis­counts.’’

Mr Love­day says that if you are in­ter­ested in chang­ing to a fixed rate, you should con­sider rate lock fees and po­ten­tial break costs if you switch again dur­ing the fixed pe­riod.

‘‘Break fees can cost thou­sands and ap­pli­ca­tion fees for fixed rate loans can be around $600; costs like these must be fac­tored into the de­ci­sion­mak­ing process,’’ he says.

Michelle and Brett White are build­ing their home and are con­sid­er­ing switch­ing to a fixed rate.

‘‘We had a fixed rate on our last prop­erty for four or five years when the mar­ket was boom­ing and in­ter­est rates were all over the place and it was a good fit for us at the time,’’ Mrs White says.

‘‘We both like to look five or six years ahead and we would def­i­nitely con­sider switch­ing to a fixed rate as long as there aren’t too many fees as­so­ci­ated.’’

Pic­ture: DAVID CRONIN

PLAN­NING: Michelle and Brett White would def­i­nitely look at a fixed home loan rate.

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