The official cash rate hasn’t moved since it was cut by 25 basis points in August last year, but as lenders continue to push up their rates independently of the RBA and the threat of interest rate hikes loom, many are wondering if now is the best time to lock in their home loan rate.
The benefits of fixing
The most appealing aspect of a fixed home loan rate is the financial security it offers, particularly for those who don’t have a lot of wiggle room in their budgets.
There are predictions of up to eight interest rate rises in the next two years, which could be concerning for those who are already facing financial difficulties.
A fixed rate can provide a set period of security, providing mortgage holders with peace of mind that allows them to plan ahead for the future.
Fixing isn’t always the answer
While a fixed rate can have its benefits, you need to remember that you will be locked into your home loan for a set period of time, usually up to 5 years. This means that you won’t be able to change your loan without having to face potentially hefty break fees.
Reconsider a fixed rate if you’re considering selling, refinancing or changing your home loan in any way in the near future. A fixed rate means you’ll lose a lot of flexibility, which can make things difficult for you if there are any major changes in the future.
Another thing to keep in mind is that a fixed loan may have restrictions on making additional repayments, making it harder to get ahead on your loan.
The best of both worlds
If you want security and flexibility then your best option might be to hedge your bets and choose a loan that is partially fixed.
Most home loans allow you to split them so that you only pay a fixed rate on a portion of the loan. Loans can be split to varying degrees, but are most commonly split 50/50.
If you’re considering fixing, your best option is to talk to your lender or a mortgage broker to get the best advice for your financial situation.