My Property Preview

Issue 78 19 February 2010 With interest rates rising, albeit slowly, many home owners are wondering whether now is the time to fix. Here’s some things to consider on whether to fix or not to fix.

Decisions, decisions

If you lock into a fixed-rate loan for a set period, you won’t benefit if interest rates are cut, but if official rates rise, yours will not. Generally, fixed interest rates are higher than variable rates – this is the price you pay for knowing exactly what your payment is each month.

Fighting fixed Fixed-rate home loans offer the security of a regular repayment amount, but they are for the fixed term, usually one to five years. So, if interest rates drop, your repayments will remain the same. But if rates go up, you’ll benefit as your repayments will stay put. Remember, though, that fixed-term loans usually charge an early termination fee or administration charge if you pay out the loan earlier than the agreed period.

Very variable

Most standard variable loans feature the option to accelerate your payments. They also offer additional features such as offset, redraw, split-loan capacity, variable repayment schedules and portability. But variable-rate loans are subject to market forces. If rates go up, so does the amount you repay. Some variable loans don’t allow extra payments to be made on top of the minimum payments – be sure to choose the right one for you.

Split the difference

Many home buyers opt for a split-loan arrangement – with part of the mortgage fixed and part variable. You can hedge your bets with a split variable/fixed loan. You get the advantage of early repayments, redraw and mortgage offset, without exposing your entire loan to fluctuations in interest rates. Remember that if you exit your loan early, penalties will still apply to the fixed portion of the loan.

Fancy features

Don’t select a provider and loan based on interest rates alone. Ask yourself, do I want to be able to pay off the loan sooner without penalty? Is a redraw facility essential? What about split-loan options? Offset accounts? Loyalty discounts? Do your homework.

Costs and conditions

Make sure you know all of the conditions, fees and charges associated with the fixed and/or variable loan you’re considering. There are lots of them and they vary depending on the type of loan and the lender.

Shop around

Whether you’re looking for a variable or fixed loan, shop around. Take time to look at mortgage comparison websites such as www.cannex.com.au, and speak with providers about their loan options and features.