Interest rates are at record lows and many people are wondering whether it's time to lock in their rates
There’s been plenty of activity which you may have noticed lately including lots of online advertising with extremely low fixed mortage rates. (Our current fixed rates are from as low as 2.09% / 2.79% comparison)
Mortgage competition is fierce at the moment, particularly in a low rate environment and the reason for this activity is that lenders are trying to lock customers in by enticing them with fixed-rate home loans.
With increased uncertainty at the moment, locking in a lower rate can reduce your monthly repayments but also gives you increased certainty about what your ongoing costs are going to be.
It may be something worth seriously considering if it suits your specific circumstances, but just like anything, it’s worth weighing up the benefits and positives before diving in.
Number 1: The bank are not offering lower rates out of charity
It may seem obvious, but banks are not offering reduced interest rates because they are nice.
Lenders are using this type of rate to secure clients, so while you are locking in a low rate the bank is also locking you in.
Number 2: Reduced flexibility
The positives of locking in a low rate for a few years has a downside. You can’t pay off your loan sooner or use an offset account on the fixed portion of your loan. In order to find a new product or lender you will need to pay a break fee. It also means that you can’t freely sell your property while your loan is fixed.
Break fees for getting out of fixed home loans early are expensive; expect costs in the thousands or even tens of thousands.
Number 3: Are rates going anywhere?
Rates were cut to a record low of 0.25% in March by the Reserve Bank of Australia (RBA).
Most experts don’t expect rates to get any lower. The RBA have made it known that 0.25% is effectively as low are the official interest rate is going to be reduced to.
Of course, lenders are not bound by the decision of the RBA and as mentioned previously, increasing competition in the market may create a situation where lenders looking to gain customers do reduce their rates.
When you might want to lock the rate in
For those seeking stability for themselves and family in turbulent times, there may be an appeal in fixing all or part of your home loan.
It’s worth noting that the RBA had already signalled it will likely remain lower bound at 0.25 per cent “for an extended period”.
Unsure? Give us a call
Everyone’s situation is different and it’s important to get tailored advice, specific to your circumstances.
Fixing your home loan for a reduced interest rate during these unstable times may sound appealing but it also comes with a downside.
If you’d like to find out more, give us a call.