Time to Fix Your Home Loan Interest Rate?
Interest rates. Wow. Just 6 months ago predictions were that they’d remain on hold in Australia until they started to drop. Maybe in 2024. Maybe early 2025.
But things have happened in the United States (did you see the news!). The world’s biggest economy has had a jolt, and global money markets and reserve banks have moved to a ‘wait and watch’ position.
Inflation in Australia has stabilised, and is even dropping. Employment rates are good. On paper, things look all OK. But sentiment is lagging behind the numbers. Most mortgage holders are still doing it tough and counting their pennies…
Fixed versus Variable Rates: 101
Choosing the right kind of loan depends on your personal situation, earning capacity and long-term goals for your property.
Here are the basics.
Fixed rates let you lock in your interest rate for 3 or 5 years. You can predict what your repayments will be. Fixing is insurance. You can more easily budget month-to-month.
Variable rates follow the market. If the RBA rates drop, so will your repayments. Vice-versa if they rise.
The Details
Fixed: The banks know what they’re doing, and factor in predictions about future rate changes. But even they are guessing, looking at domestic and global factors.
With a fixed-rate loan, you usually can’t pay off more up-front (or any extra payments are capped). There are usually extra fees for quitting the loan too, so it’s best to stay put or use the same lender if you’re getting a new loan.
You might get out on top, or you might not.
Variable: You’re riding the wave of Reserve Bank interest rate decisions. But you also have the ability to make more payments as you go, and even take advantage of an offset account. If you think you’ll be able to pay more than the monthly amount, or can save some of your pay each month, this is the way to go. But if rates rise, you’re going to pay more.
You might get out on top, or you might not.
Right now (Nov 2024)
Most experts are still predicting that interest rates will drop … sometime. But everyone’s watching the US to see whether it’ll be business as usual or total chaos. A drop is not certain.
Many fixed-rate loans are currently lower than variable rates. This is tempting borrowers to refinance or get their first loans as lower-interest fixed loans. Beware!
A lower fixed-interest rate now is a bet that rates will stay higher than your rate for a few years.
But it’s a gamble. You can get a higher variable rate in the hope that interest rates will drop in the next few years.
It’s like that Seinfeld episode where Jerry is shopping for pain killers: “This is quick-acting, but this is long-lasting. When do I need to feel good? Now or later?”
The Solution?
Everyone is different. If there was a single best home loan, everyone would have it. Instead, there are around 1000 different loans available in the Australian home loan market.
Mortgage Broker Melbourne brokers spend time with you to understand your financial situation, your goals and your home ownership dreams.
It might be fixed or variable. Or it might even be a split loan, where you take advantage of paying some of your loan at a fixed rate and enjoy the extra benefits of a variable-rate loan for another portion. Many lenders will now allow you to split your loans from the outset, without having to pay for two separate loan applications.
Don’t Be Confused
This might all seem daunting, but in the end it’s just about what you have and what you want.
At no cost to you (ever), our expert brokers will talk to you, learn about your situation, and find the very best home loan to suit you. Don’t just fall for the lowest rate you can find. We can probably get you an even lower rate, or help you realise why extras like offset and redraw can save you thousands in the long run.
Find the best loan. Contact us.
Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!