The banks are trying to get you to fix your loan, but is this in your best interests or theirs? Tune in to hear Bushy Martin’s expert advice and key considerations on the topic of fixed rate loans.
Welcome! I want to make you aware of the potential risk associated with fixed rate golden handcuffs.
We’ve been seeing a worrying trend in recent times, where a number of the major banks have been ringing their broker clients, introducing themselves as your home loan specialist and trying to get you to fix your home loan and investment loan rates for up to four to five years because fixed rates are currently generally lower than variable rates.
Now, this is great for the banks because it essentially means that they’ve golden handcuffed you for the next four to five years, but is this actually in your best ‘interest’? The chances are, it’s not. What you may not be aware of is that when you fix the rate on your loans, a number of changes happen immediately… Firstly, your offset account is turned off. This means that any savings you’ve got sitting in it aren’t going to be reducing the loan term or the interest that you’re paying. Secondly, you’re restricted significantly in terms of how much extra, if any at all, you can pay off the loan during that fixed rate period. Thirdly, you incur very significant break costs, often in the thousands if you decide to sell a property or to make a change to loan during that fixed rate period.
So, against that backdrop, the only time you should consider fixing your loans is if you are 100% confident that nothing is going to change during the fixed rate period. This means not losing a job or not selling the property. So you need to be very careful. You also need to make sure that you’re not looking to pay any extra off the loan during that period, because chances are you won’t be able to.
Finally, you need to ensure you don’t have significant savings in an offset account that’s no longer going to benefit you in reducing the loan. I do need to make note that there is a specialist lender that will give you a fixed rate loan with a full offset account. So if you’re interested in getting the best of both worlds, reach out to me and I’ll give you the details.
Before making a decision on fixing your loan and if you do get a call from one of the major banks around this, I strongly suggest you have a chat to a savvy mortgage broker who can look at this in the context of not only the rate, but all the other important aspects that you need to incorporate in minimising the overall cost of your loan.
That’s some food for thought to this week.
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