As the Australian economy and house prices remain strong, there is growing speculation that interest rates will be rising in the near future.
We’ve already seen a number of the major banks increase rates on their fixed interest rate products, which implies that they believe rates are headed higher.
Does that mean you should now fix the interest rate on your mortgage?
Here are a few things you should consider before fixing your rate:
Are They Already Factored In?
Fixed-rate interest products are often priced in such a way that they have already factored in potential interest rate rises.
That means if you’re going to take out a fixed-rate loan, those rates might be higher than the standard variable rate, as the belief is that rates will rise within the fixed rate period.
This is not always the case, and is why it is a good idea to have your mortgage broker shop around for you.
Will You Be Negatively Impacted?
The RBA has so far made it clear that rate rises will be slow and transparent.
If the RBA does hike rates sooner rather than later, will these changes have any impact on you at all?
With rates so low in the current environment, it’s easy to forget that it wasn’t all that long ago that we were paying 2-3 times what we are now in interest.
Will you want to Access Equity or Sell Your Property?
If you take out a fixed-rate loan, it’s not always easy to refinance. While it is possible, it normally attracts a break fee, which can be more than the money that you are potentially saving by fixing your rate.
If you want to access your equity and still fix your rate, it might be worth considering locking in only a portion of your home loan and taking out a short-term loan.
The same thing applies if you want to sell your property, as there will likely be break fees that come with paying out your mortgage on a fixed-rate product.
Is a Rate Lock Worth It?
In an environment with interest rates moving, home loan products can change rapidly.
When you take out a fixed-rate loan, the actual rate you get doesn’t get locked in until the settlement date, not on the date you apply for the loan.
One way to avoid this issue is to pay a Rate Lock Fee to let you access the rate at the application stage.
Be sure to discuss your future finance and property plans with your mortgage broker before locking into any fixed loans.
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