When it comes to ‘fixed’ or ‘variable’, there are lots of things to consider and check.
Today I want to focus on ‘fixed’ loans.
First up, think about if it’s better for family finances and your long-term strategy to split the mortgage to a mix of fixed and variable. Does the lender provides support with call centres, a branch network and internet access? And find out what are the total fees and charges are and request a detailed breakdown of upfront servicing and exit costs.
Another thing to consider is what if you move to a new property? Is the loan portable and can you transfer the loan or will this incur break fees and a new set of establishment costs?
When planning to leverage the equity in your home to invest in another property, remember that switching fees can be expensive.
If you are going to sell your property during the fixed term, find out if there are break fees for exiting a fixed rate mortgage early.
If you require equity for home improvements, renovations or other expenses, it’s worth knowing some fixed rate lenders will not release equity and moving to a different lender could be expensive. Check the lender allows extra payments during the fixed term. Most will limit this and impose penalties for overpayment.
If there’s a possibility of you withdrawing any extra payments, check the small print. Most lenders will not allow this until the fixed term has expired.
Lastly, ensure you have the best rate by checking with a sophisticated Mortgage Broker to make sure costs, terms and conditions are the most suitable. Check the rate to which the loan reverts at the end of the fixed term – is it the variable rate, or higher?
Now for the pros and cons of a fixed home loan
- Certainty of repayments.
- Great if variable interest rate goes up.
- Less stressful because of fixed payments.
- Break fees if you want to change loans.
- Limit on amount of dollars you can place in an offset account against the loan.
- Not good if selling property as break fees will apply. Variable interest rate may apply
Questions to ask before you FIX your home loan
- What is the rate?
- What are the estimated costs and fees?
- How much exposure do I have to that lender?
- Am I cross-securitising properties?
- Will this lender lend me the most dollars?
- Which lender has the greatest servicing?