Fix the mortgage rate
Sarah Daly weighs up the pros and cons of switching to a fixed-rate home loan.
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.’’
PLANNING: Michelle and Brett White would definitely look at a fixed home loan rate.