As mortgage brokers, one of the most common questions we receive from home loan borrowers is whether they should fix their loans, especially at the moment as rates have been steadily rising. While there is no one-size-fits-all answer to this question, there are a few factors that borrowers should consider before making a decision.
First, it’s important to understand what a fixed-rate home loan is. With a fixed-rate home loan, the interest rate remains the same for a set period of time, typically between one and five years. This means that borrowers will know exactly how much their mortgage repayments will be during this period, making it easier to budget and plan their finances.
On the other hand, a variable rate home loan has an interest rate that can change at any time, depending on market conditions and the decisions of the lender. While variable rate loans can offer more flexibility and potentially lower interest rates, they also come with the risk of higher repayments if interest rates rise.
So, should borrowers fix their home loans? Here are a few factors to consider:
- Interest rate trends: If interest rates are currently low and are expected to rise in the near future, fixing a home loan could be a smart move. This will protect borrowers from potential rate hikes and help them budget with certainty.
- Budgeting needs: If borrowers prefer to have a set repayment amount each month to make budgeting easier, a fixed-rate home loan may be the way to go. This is especially true for those who are on a tight budget or have limited income.
- Flexibility needs: If borrowers anticipate the need to make extra repayments or pay off their loan early, a variable rate home loan may be a better option. Fixed-rate loans often come with restrictions on extra repayments or may charge fees for early repayment.
- Risk tolerance: Finally, borrowers need to consider their risk tolerance. Fixed-rate loans offer stability and predictability, but they may also come with higher interest rates. Variable rate loans can be more volatile, but they may also offer lower interest rates and the potential for savings.
Ultimately, the decision to fix a home loan comes down to each borrower’s unique circumstances and preferences. As a mortgage broker, it’s important to help your clients understand the pros and cons of each option and guide them towards the loan that best meets their needs.
In conclusion, fixing a home loan can offer stability and predictability for borrowers, but it may not be the best option for everyone. It’s important to carefully consider the interest rate trends, budgeting needs, flexibility needs, and risk tolerance before making a decision. As always, working with a knowledgeable and experienced mortgage broker can help borrowers navigate the options and make an informed decision.
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