KnowHow founder Bushy Martin says you need to consider your situation and weigh up the true cost benefit to decide whether or not you should fix your home loans.
In a recent live ‘Bush Bite’ video on Facebook, Bushy said that many are asking this question with record low interest rates that are predicted to remain relatively unchanged for the next three years.
However, he said you need to consider a number of things before you lock yourself in.
“One of the big thinks to think about, if you’re going to fix your rate, is are you looking to pay down the loan in that time? And are you likely to make any changes, whether you want to refinance again, whether you might want to do renovations on the home or if you’re considering to sell the property. If so, then I’d really question the merits of this fixing,” Bushy said.
These questions are important because if you decide to sell your property or make a major change to the loan before the fixed rate period expires, then you will face substantial break costs, Bushy explained.
“We’re talking not just hundreds, we’re talking thousands of dollars. A couple of clients recently came to us and said ‘hey, we want to take advatange of the fixed rates …’ to break those loans was going to cost them in excess of twenty thousand dollars to do so,” he said.
“So you need to think very carefully around, if I’m going to fix, am I happy to sit at that rate, and am I going to be making any changes?”
Bushy said most lenders will switch off your offset account when you fix the rate, with some also removing the ability to redraw during that period. Although, he said there are some that will allow you the benefits of both.
“There are some lenders that will still offer 100% offset, but there’s only a couple of them … and if you want to find out who they are, reach out to our finance architects,” he said.
Bushy said there is a ‘hybrid solution’ in between fixed and variable which allows for an offset account.
“What some clients will look at doing is fixing a portion of the loan and keeping a portion variable to allow for an offset account together with extra repayments to start to pay the loan now,” he said.
“What we normally suggest you do is estimate how much extra you’re likely to pay off over that fixed rate. So let’s say you decide to fix your rate for two years and you think that you can safely pay off an extra 20 or 30 thousand over that period. Then, you could leave a portion of the loan variable and fix the rest. You can then have the offset account and the variable portion, you can pay it off at will and still take the savings benefits of the fixed rate period.”
Finally, Bushy said if you do decide to fix your home loans, you should ideally be looking at a period of no more than two or three years.
“Life changes and a lot will happen in banking, but also a lot will happen in your life over that period. And you don’t want to be locking yourself into something that is then difficult to get out of if you need to make changes at some point.”
Listen to the full Bush Bite video on Facebook below. Want to know more? Bushy talks more about fixing your loan here.
KnowHow founder Bushy Martin shares regular, live ‘Bush Bite’ videos on his Facebook page sharing tips and tricks to cut costs, boost your savings and take advantage of opportunities in property. Connect with Bushy here.
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