Most Australian lenders offer both variable and fixed rate home loans. Depending on the current economic climate, fixed rates can seem very attractive. Before you rush in to fixed rates, beware the pitfalls of such loan types.
A fixed rate loan is one that is offered at a fixed rate for a fixed term. For example, you can usually get terms of 1, 2, 3, 5 and 7 years. During this period, you pay the agreed rate, regardless of what happens to variable rates.
People will consider a fixed rate when there is a high likelihood of a rate rise in the future and where they expect they may be challenged to repay if rates should increase. For example, couples that are thinking of starting a family in the future may want to lock in some fixed rates.
However, there are many common pitfalls of a fixed rate loan:
You can alleviate some of these pitfalls by having split loans where you have a portion as a fixed rate and a portion as a variable rate loan.
At the end of the day, be sure to talk to your mortgage broker about the advantages and disadvantages of fixed rate loans and the mechanisms that can be used to get you the best of both worlds.
Contact Us if you have any questions on whether a fixed rate is right for you.