In recent years, many Australians have seen fixed-rate home loans as being risky, explains Homeloans national marketing manager, Will Keall.
“Some borrowers fear being stuck on a fixed-rate while variable rates fall, more than they fear being subject to interest rate hikes on a variable-rate home loan,” Keall says.
“However, when factoring mortgage repayments into your monthly budget, the only way to be assured that your repayments won’t increase is to fix. Many would argue, therefore, that a variable-rate loan is the risky option.”
Typically, fixed-rate home loans offer a fixed-rate term of between one and five years, after which time the loan will revert to the standard variable rate at the time.
Keall refers to fixed rate home loans as “potentially a sensible choice for some borrowers” in times of economic uncertainty.
“In recent months we’ve had very varied views from economists on where interest rates are headed. At the end of the day, no one really knows, so the only way to provide assurance of your monthly loan repayments over the next few years is to opt for a fixed rate home loan,” he says.
Further adding to the argument towards fixed-rate mortgages is the fact that many lenders, including Homeloans, have recently reduced their fixed rates.
“We now have one, two and three-year fixed-rate home loans at well below our cheapest variable rate,” says Keall.
Australian borrowers seem to be seeing the merit in fixed-rate home loans. In fact, there has been a 75% increase in the portion of the number of dwellings financed with a fixed loan in the 12 months to July 2011. (source ABS)
As well as seeing an increase in fixed-rate loans, Homeloans is also experiencing demand in split home loans – where borrowers fix a portion of their loan and leave the remainder at the variable rate.
“If home owners are apprehensive about a perceived risk in fixing their loan, then a split loan may be a safe middle ground,” adds Keall.
Keall advises that for borrowers who want to maintain their repayments at a constant level in their monthly budget, a fixed rate home loan may be appropriate; however, they should carefully consider their options.
“A fixed rate home loan could be considered, but it is important to make the decision to fix in accordance with your personal financial situation and not to try to predict what the market will do,” Keall says.
“Borrowers should consider the terms and conditions that prevail during a fixed rate period, such as whether or not extra repayments can be made , plus and break costs if you discharge your loan early. It is important to ensure that you fully understand how it will affect your financial situation."
Homeloans has one, two and three-year-fixed rates at 6.59%*. See Homeloans’ fixed interest rates here.
If you would like an obligation-free discussion with a Homeloans consultant about fixed rate home loans, please contact us.
The material presented in this article is for general purposes only and does not take into account any individual’s financial circumstances, needs or objectives. All Homeloans loans are subject to lending criteria, terms and conditions. We recommend that you speak to an independent financial adviser before making decisions about your financial situation.*Rates effective 12 September 2011, and subject to change without notice. Click here for Homeloans interest rates table.