Is NOW the best time to lock in a fixed rate?

Australia’s low cash rates will remain until 2023 according to property experts. According to CoreLogic, cash rate will stay at 0.25% until 2023. What does this mean for you? How can you make the most out of this?

Interest rates are currently at an all-time low and lenders are more determined than ever to get customers. So determined that they’ve started offering fixed-rate home loans. Variable rates are lower now but fixed-rate loans are much lower since lenders think there will be a strong chance of interest rates falling further in the future.

Fixed-rate home loans are great options to reduce monthly repayments. It may also be the only opportunity you can have in years. Low cost of debt is one of the best ways to help families support housing and survive the current economical disaster brought by the pandemic.

But before you take the plunge, here are some important things to consider:

Lock-Rate Fee?
Choosing to pay a lock rate fee secures the interest rate of your loan. This means that your interest rate won’t be affected if rates move as you’re paying your loan. Unlike a variable interest rate that changes throughout the term of your loan, fixed cash rate stays for the length of time you have agreed to fix it.

Pros and Cons of a Fixed Rate
Transitioning from tenant to homeowner is a huge step, if you want to commit to a fixed home loan rate, make sure you have weighed the pros and cons.
Knowing the risks involved in any financial decision is important before signing an agreement. The following are things to watch out for when it comes to fixed rates.

Cons of a fixed rate:

You are stuck to your lender’s rules. You can’t make extra repayments to pay your loan off faster or switch lenders if you want to. Fixed-rate loans usually cap the repayments so you can’t pay off your loan quickly.

  • You’ll lose your offset account or extensive redraw facilities.
  • Fixed-rate loans are usually higher compared to adjustable-rate loans.
  • No rate cuts in the future. You may be locked in a higher rate if cash rates drop. So make sure you’ve done your research.
  • After your term expires, your loan will go back to the standard variable rate. You may get shocked at high-interest rates if you’ve been paying a considerably low fixed rate.
  • Early exit fees are charged if you wish to exit the loan early. This can amount to a few thousands of dollars.

Pros of a fixed rate

  • No surprises. You know exactly how much interest you have to pay over the term of your loan. This means you will have the advantage of predictability. You can plan your budget accordingly and worry less about the future.
  • If you’re new to the market and don’t like taking any risks, fixed-rate loans can be the best choice for you.
  • Fixed-rate protects you from rising interests. This means that if rates are rising you don’t have to worry about the increase. So if you think interest rates are going up in the next few years, signing up for a good fixed-rate loan can save you a lot of money.

Is this the right time to lock in record-low interest rates?
There are many good reasons to lock in fixed rates now. First of all, this is the first time in years that the reserve bank lowered the cash rate by 25 base points. We are treading on uncertain times and the property market needs to recover in order to rise above this crisis. If you’re worried about rising rates, a fixed rate can save you now.

Low-interest rates may be a great financial bonus for you and your family. This is your one big chance if you’re seeking help and stability due to negative outcomes. Some people lost their job while others lost their business. Locking in a fixed rate will save you from the worry of rates going higher than they are now. You will win by avoiding high rate hikes, however, you will miss out on rate cuts if it’s lower than what you have agreed upon.

So is a fixed-rate loan right for you? Choosing a fixed-interest loan can give you certainty for years and it’s a very good choice if rates are rising. However, if cash rates will remain or go lower in the next few years, it might be best to just ride out the tide and go for standard variable rates.

Most people don’t go lock the rate because they know they’ll miss the opportunity to secure lower rates in the future. Truth be told, trying to predict interest rates is difficult. No one knows how the current global economy will respond to unique events such as a pandemic. You can read the forecasts but know that even the smartest financial gurus don’t always get it right. Like other financial decisions, fixing your home loan rate is still a gamble.

Are there other interest rate options? Aside from standard and fixed rates, you can get a split rate loan. This is a combination of two where some parts of your loan are fixed while others remain variable.

Wondering which home loan feature is right for you? Talk to our expert mortgage broker at V Corp today to know your best options. Contact us here.