Interest rate movements are never easy to predict, but with the major banks lifting their variable rates out of cycle with the Reserve Bank, many homeowners are preparing themselves for more rate rises to come. There are a number of things worth considering before fixing your interest rate. Fixing rates is always a bit of a gamble because there’s always a chance that rates could go down, however most economists predict that we have seen the bottom of the interest rate cycle and that any future movements will be upwards.
Is a fixed loan right for you?
The advantage of having a fixed rate is that it makes it easier to budget so mortgage holders know exactly how much they will need to set aside from month to month. Having a fixed rate takes away the stress of worrying about interest rate movements. Fixed rate loans do have their drawbacks though, including having less flexibility than variable rates, meaning that you may not be able to make extra payments or have a redraw option on your loan.
A combination of fixed and variable
Another option is a split home loan. This allows you to pay a fixed rate for a portion of your home loan while paying a variable rate for the rest. This might be a good option for those who want to hedge their bets.
Compare what’s on offer from different lenders before locking in a fixed rate. Remember too that it’s not just the rate itself that matters, but the features of the loan too. How you arrange your home loan can have a significant impact on your long-term finances so consider all costscarefully and make the best choice for your financial situation.