With interest rates at an all time low, most home buyers are asking the tough question “should I fix my loan or not?”
Increasing interest rates can have a major impact on your lifestyle. And because of this, you should consider your future plans, budget and financial flexibility when deciding on whether to fix your loan or not.
A fixed rate home loan allows you to lock-in an interest rate for a certain period of time. The most popular term ranges from one to five years. During this period, your interest rates and monthly repayments remain the same whether the lenders change their interest rate rises or not. At the end of the fixed term, you have the option to fix the loan again or switch to a variable rate loan option. Whether you are new into the home buying business or out to buy a second home or property, the time could be right to go with a fixed rate home loan. Fixing your home loan rate is a way of managing risk. If increasing interest rates would have a significant impact on your ability to repay your loan then fixing your rate makes significant sense.
However, before making such a big decision of choosing to fix your home loan, there are several factors you need to consider. First of you need to shop around for a lender who will offer some flexibility and you also need to ask yourself and maybe get some advice on how things may turn out three years or five years from the time you are considering fixing your loan. Fixing for a shorter period may make more financial sense as you watch the market trends.
Do you love certainty? The main advantage of fixed rate home loans is the fact that you can sleep better at night and even plan ahead because you already know what your monthly obligations are. However, one of the downsides of going with a fixed rate home loan is that most lenders won’t let you pay off your loan early or make extra payments without incurring penalties.
If you are still undecided, there is always the option to have your cake and eat it. The split loan option gives you a chance to have part of your loan fixed and the other part subject to a variable rate.
After you’ve done your homework and decided which loan type to go with, always remember if you don’t ask you won’t get it. If you are using a mortgage broker, request the broker to negotiate the most flexible option that meets your financial situation.