Fixed Rate Home Loans
Getting fixed rate home loans are just like cross-country skiing. You go at a steady pace that takes you away from the uphill challenges and exhilarating dips of the slopes.
You might think that this is boring yet the sense of security when you know your exact repayments and how much they will be for a specific time could work well for those who love to plan ahead or those who are tight on budget.
Unlike variable home loans, interest rates on fixed rate home loans don’t fall or rise with the official cash rate changes. Instead, this is locked within the same rate for a particular timeframe, usually 1 to 5 years.
Is It Better to Get a Fixed or Variable Mortgage?
One of the significant decisions you need to make when looking for a home loan is if you should opt for a variable or fixed rate.
Fixed rate home loans offer certainty because you will know the exact amount of your loan repayments every week, fortnight, and month. This makes it easier to budget, specifically for first time homebuyers dealing with upfront expenses such as moving costs and renovations as well as the subsequent regular payments.
In addition, this kind of loan can be of great help of you lock your loan to a low interest rate. If there is an increase in the official cash rate during the fixed term, it won’t have any effect on your interest rate. But, when the official cash rate made the interest decrease lower than your fixed interest rate, you will not be able to save money at all.
What are the downsides of fixed rate home loans? If you wish to end the contract since you have plans to sell or move, there is a chance that you will need to shoulder the break fee that can be a bit expensive.
One more drawback of fixed rate home loans is the restrictions on extra loan payments. There are instances when such extra repayments could acquire a fee, are capped to a specific amount, or completely prohibited.
On the other hand, variable rate home loans let you make additional repayments usually at no extra cost. It means that you can pay off your loan much faster and based on the official cash rate, you can also save on the interest. However, there are also some disadvantages. It might be difficult to budget with complete certainty because loan repayments will be subject to changes in interest rates. It can be a cause of stress as some might find it difficult to prepare themselves for hefty changes in interest rates.
What is the Current Mortgage Rate for a 30 Year Fixed Loan?
At the time of writing, lenders in Australia don’t offer a 30 year fixed loan right now. In the existing market, you can find fixed rate home loans for 15 years at maximum with a rather small pool of lenders.
In Australia, the most common fixed rate home loans are still for the fixed rate terms of 1 year to 5 years with some lenders offering fixed rate terms for up to 10 years and some also offer a fixed term for 15 years.
This means that you will not be able to get a 30 year fixed loan directly. However, the best thing that you can do is to apply for a fixed rate loan that comes with a term provided that you could find and refinance with new fixed rate home loan when the initial fixed rate term is nearing its expiration. It can bring in the loan’s total length for up to 30 years.
This will still of course depend on what the interest rates do at the time of expiration of your fixed rate, whether banks will be willing to refinance your existing loan to another fixed rate as well as how much you can afford depending on your personal financial situation.
What is the Best Fixed Rate Home Loan?
It can be very daunting to choose the right kind of home loan that best suits you. It is especial true if you are trying to determine if fixed rate home loans are going to work out as the cheapest choice in the long run. Since there can always be changes in interest rates, it can be a bit tricky to determine if this form of home loan can give you the most competitive rate.
This is the reason why it is important for you to compare and find the best fixed rate home loan that suits your existing and future needs.
When looking for the best fixed rate home loans, make sure to remember that the lowest fixed rate home loan can be a honeymoon or introductory offer. It means that you are going to be charged the least amount of fixed rate on the home loan within a specific period of time prior to having the interest fixed at a higher amount. In addition, you also need to single out ongoing and upfront fees in various home loans for you to find the best fixed rate home loan for you. Compare different home loans to find the best deals for you.
Can I Get a Fixed Rate Mortgage?
Before locking in your rate, you have to ensure that a fixed rate mortgage really suits your situation. A long term fixed rate is often suitable for buy and hold investors instead of people who are searching for a house they will live in.
Even though fixed rate mortgage is the most famous option, it would be better for certain homeowners compared to others. Generally speaking, despite the low rates, fixed rate home loans are best for people who are planning to stay in the house for a few years or those who will refinance and have plans to continue living in the house.
You might not enjoy any benefit from fixed rate home loans if any of the scenarios below are applicable to your specific situation:
- If the existing rates are high at the moment, you should lock in at this high rate.
- If you lack good credit, you might not be qualified for a favourable rate or you might not be qualified at all.
- If you have no plans to stay in the house for several years, the upfront cost of fixed-rate home loan rates might make this less cost-effective.
- If you cannot make high payments of the fixed-rate home loan yet you will receive extra income soon, it might be easier to be qualified for a hybrid ARM.