To fix or not to fix your home loan

The official cash rate may be on hold for now, but as predictions loom of imminent rate hikes and as lenders continue to push up their rates independently of the RBA, many are wondering if now is the time to lock in their rate.

Reasons to fix

Obviously, the main reason that people fix their home loan rate is financial certainty. With predictions of up to eight interest rate rises in the next two years, many are concerned they will not be able to afford their repayments if interest rates suddenly go dramatically up.

A fixed rate provides a set period of security, allowing mortgage holders to plan ahead for the future.

Reasons not to fix

When fixing a home loan you are locked in for a set period of time, usually up to 5 years, meaning you won’t be able to change your loan without having to face hefty break fees.

It’s not a good idea to fix if you’re considering selling, refinancing or changing your home loan in any way. You can lose a lot of flexibility if you decide to fix your home loan, which can make things difficult 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.

Hedge your bets

To get the best of both worlds consider fixing just part of your mortgage. This will provide you with the partial-security of a fixed rate, while still being able to have some flexibility too.

Most home loans will allow you to split a loan so you can get the benefits of fixed and variable rates. Generally a loan will be split 50/50, but it can be split to varying degrees.

For further advice about finding the best home loan, contact the team at Professionals Finance.

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