Laura Akhurst - 13 Dec, 2013

Should You Lock In A Fixed Home Loan Rate?

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The Australian Bureau of Statistics (ABS) report that more Australians are locking in fixed rate home loans. But, before jumping on the fixed rate home loan saving’s wagon, experts suggest that new home buyers looking for a home loan and existing home loan holders looking for better rates need to compare costs and explore all possible fixed home loan pitfalls.

The amount of fixed rate home loans has jumped to 17.4 percent, the highest level since 2007. At present, the average 3-year fixed rate home loan offered by Australia’s big four banks, known as the Commonwealth, NAB, ANZ and Westpac, hovers around 4.98 percent. Two years ago, this rate was 7.23 percent.

However, many Australian’s are purely looking at the interest rate of fixed home loans, rather than comparing home loan’s fees and charges and features. Economists are also suggesting that the Reserve Bank of Australia (RBA) may make one more rate cut early next year. If this occurs, it may lower interest rates even further.

What Should I Consider Before Locking in a Fixed Home Loan Rate?

To ensure that you are making a sound financial decision about fixing your home loan rate, one that is not costly in the long-run, it is suggested that you consider the following aspects:

1. Your Own Circumstances

We are all different and have varying financial and personal needs, therefore there is never a one-size fits-all solution. In order to make a decision about a fixed rate home loan, you need to consider your own circumstances carefully, both now and well into the future.

2. Compare Fees and Charges

Look at the cost of fixing your mortgage and changing your home loan. Application and exit fees, ongoing costs and property valuations are costs that you can possibly encounter when fixing a home loan’s rate. These costs can add thousands to a home loan’s value. Always make sure you do the math before you sign any contract.

3. Understand Break Fees

Most fixed rate home loans have a ‘break fee’ clause that prevents the lender from sustaining a loss, should you elect to withdraw from the home loan before the end of its term. Sure there are now laws in place that prevent this fee from being exorbitant, but a lender is still allowed to recoup their costs. So don’t be lulled into a false sense of security. Instead you need to be aware of what your break costs are and when and how your lender can enforce these.

4. Get a Handle on Extra Home Loan Repayment Restrictions

Most fixed rate home loans will not allow you to make additional repayments on your loan, or if you can make additional repayments, these are restricted to a certain amount such as $10,000 per annum. If you pay more than this amount off your home loan, then your lender can penalise you.

5. Know About the Lack of Extra Home Loan Facilities

Most fixed rate home loans do not come with a redraw facility or an offset account, so if you’re used to using these facilities to get ahead or as a way to save, then you may want to consider the alternatives.

Are you looking to compare home loans? Then start your search with eChoice’s rate table and find the right home loan for YOU today

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