You’ve probably heard somewhere that a fixed home loan will save you more money. Hence, you’re looking through the internet for evidence of this said claim.
Well, I hate to break it to you like this, but the bank doesn’t like you saving money because it means they are losing money. Should I fix my home loan 2020? It has always been a question of each to their own.
Most people take comfort in the notion that a fixed interest rate is more safe, more constant. With my clients, I always advise that they want to consider fixing because it gives them peace of mind of knowing what the loan repayments will be. If you think you’re going to beat the bank you’re betting against probability.
Another thing borrowers don’t get is that most fixed loans only allow so much to be repaid off them during the fixed period. If you go over the allowed amount then you break the fixed contract and maybe up for large break fees. It can stop you from paying your home loan down as fast as possible.
Business is business
Think about it. Banks don’t stay in business because of charity work . Businesses stay afloat because they provide a product or service and it’s something all their consumers have to pay for. Which, in this case, banks would be giving out fixed interest rates that naturally favours THEM— and unfortunately, it might not favour you.
So, what can you do about fixing your home loan?
Many of my customers like the idea of knowing what the loan repayment will be. They don’k like the idea of being limited as to how quick they can pay down their home loan. There’s a solution here. You can fix part of the loan and keep the other part variable. This is commonly called splitting the loan.
To summarize the downsides are:.
- It doesn’t let you enjoy a decrease in interest rates.
- It doesn’t let you make extra repayments since your loan is capped (or you potentially pay a break fee).
- If you want to change the loan or sell the house then you could be up for break costs.
You need to make a measured decision if seriously considering fixing. Many of my clients like the split option because:
- It lets you make flexible payments.
- It lets you set extra home repayments and pay off your loan earlier (with the help of an offset account).
- It lets you access the variable section of your home loan when you need the money (without having to pay a fee for it!).
Doesn’t using a split rate make things easier for you? It brings you the best of both worlds when it comes to home interest rates!
Making smart choices about fixing your home loan
To sum it up, using a 100% fixed interest rate can limit your options. You can’t enjoy discounts or pay off your loan ahead of time. On the other hand, a variable rate doesn’t come with certainty. Each repayment you make is subject to the rise and fall of home loan interest rates set by the bank. The third option, the split rate, answers the pitfalls found in the previous two. By fixing only a section of your home loan interest, you get to have better control over your finances.
Now that you’re familiar with the different mortgage types, let’s go back to the question you’ve typed on the Google search bar: “Should I fix my home loan 2020“.
The answer? I’ll be honest with you. It’s a case to case basis. What might be the best decision for others when it comes to their mortgage might not be the best for you. A smart move you can take now is to get expert advice before making any final decisions.
Being a mortgage broker for over 13 years, I’ve helped people make informed choices and avoid pitfalls. So, what are your specific concerns about your home loan? About your home loan interest? About your mortgage? Tell me about them! Let’s find the most cost-effective route for you.
Will Bell Mortgage Broker is a mortgage and finance broker based in Melbourne specializing in residential home loans. Will is all about the average Australian understanding just enough of the broader economy to take action on your own personal economy. He is the host of the My Personal Economy Podcast which you can check out here.
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