Fixed Mortgage
Fixed or variable rate mortgage? That’s one of the most common questions that home owners ask when interest rates increase. As soon as the Reserve Bank bumps up rates it’s very tempting to refinance the home loan in order to enjoy a fixed home loan rate. At the end of the day though, the question is, will it really be better for you financially?
In Australia, a fixed rate mortgage is, like its name suggest, fixed. It offers borrowers a fixed interest rate over a fixed period of time. That also means that the mortgage repayments are fixed and will not change during the term of the loan, either up or down. This can be an advantage in some situations or a disadvantage in other situations.
To start with, lenders know that when interest rates rise, home owners are often keen to refinance to a fixed interest rate so they bump up the fixed home loan rates, sometimes by a significant margin.
Is a fixed rate mortgage a good thing?
Maybe yes. Maybe no. For instance, when interest rates drop, and you have a variable rate mortgage, your repayments reduce by $20, or $30 per week perhaps. You can then afford to pay an extra $20 or $30 per week off your mortgage and reduce the debt sooner. If, on the other hand, you have a fixed rate mortgage, your repayments stay the same so you’re paying $20 or $30 more than you need to. And when you consider that fixed rate mortgages in Australia are offered at a higher interest rate then variable rate mortgages it might not be $20 or $30 extra that you’re paying per week. It might be more like $30 or $40 extra.
Naturally, the reverse happens if interest rates continue to rise. People on variable rate home loans find that their repayments go up $20 or $30 a week or more while yours don’t.
Fixed? Variable? Part fixed and part variable? Will interest rates continue to rise? Will they go down again soon? Talk to a Wealth Concerns mortgage broker and we can help you answer these questions and more to ensure you refinance to a home loan that meets your financial goals.
Contact Us
If you would like to discuss your specific circumstances call us on 1300 700 496 or alternatively text your name and number to 0411 320 962 and we will call you.