eChoice Home Loans

If you’re worried about rising interest rates, then a fixed rate home loan may be the solution.

Fixed rate home loans offer a fixed interest rate for a set period of time. Because of this, repayments remain the same for the duration of the fixed rate period, usually between one and five years. At the end of the fixed period, you can switch to a variable rate loan or negotiate a new fixed rate or even opt for a split rate loan.

Benefits

• Stability – fixed repayments allow you to plan your finances and stick to your budget, even in times of economic uncertainty.
• Cost – when interest rates rise, repayments won’t increase.

However, fixed loans generally have limited features and often charge hefty fees for early payout or for making additional payments.

Time to fix

Knowing when to fix and when to float is difficult. Even the best economists can’t predict with absolute certainty when interest rates will rise or fall. For this reason, many borrowers opt to fix for periods of less than three years. That way if rates do fall, you are only paying a higher rate of interest for a relatively short period.

When considering a fixed rate home loan, spend some time researching recent rate movements, speak to your lender about where rates are headed and brush up on your general economic news. As a rule of thumb, it is best to fix at the bottom, or near the bottom of an interest rate cycle before rates start rising again.

At a glance

• monthly repayments remain the same
• interest rate fixed
• some lenders charge hefty exit fees
• less flexible features
• limited repayment and redraw options