Is it time to review your home loans?
Recently, banks and lending institutions have been lowering their fixed-term interest rates to those below their current variable rate.
What does this mean?
It might be time to review your home loans.
Generally speaking, lenders are willing to offer a fixed-term rate that has been determined as being a fair average interest rate over the fixed period (1 year, 3 years, 5 years). Therefore the fixed interest rate gives us some indication of what the lenders are predicting will happen in the future.
With rates being as they are at the moment, indicators are pointing to a reduction over the next few years.
We often get asked whether or not you should select a fixed-term or a variable interest rate, and the answer really comes down to your cash flow management. If you have a large cash surplus and can handle changes to interest rates without a major impact on your lifestyle, then it’s often worth bearing the risk and sticking with the variable rate.
However particularly for new mortgagees, it’s can be wise to fix your interest rate for the first few years. Particularly when they are lower than the current variable rate!
This allows you to get a head start on your loan repayments. Many loan products also have the ability to split the loan. You can select both a fixed and variable rate for each portion.
If you can manage to make extra repayments, either off the principle or into an offset account, while your interest rate is fixed you may well be substantially ahead of your repayment schedule by the time your fixed period is over. Of course, with any guaranteed rate, you’re taking on risk of the variable rate reducing below your fixed-rate. If this happens you might not be able to take advantage of it.
For those interested in looking at a mortgage refinance or purchasing a new property, we can recommend and arrange your next home loan.
We prepare tailored cash flow projections to help you determine the best course of action in the current market place. We love helping members build plans to repay loans faster and pay less interest.
Need some help with your home loan? To chat with one of the WE team, book in a time for a Free Strategy Session.
Disclaimer: Information contained within this article is of a general nature. Do not be rely upon it when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.