If you’re looking for certainty on your interest rate and repayments, a fixed rate home loan might be right for you! Fixed rate home loans are quite popular in Australia and while they can be great for budgeting, they also have some limitations when compared to variable rate home loans that it is important to be aware of.
Fixed rates can be an excellent option for accurately managing your household budget. By fixing your home loan, you know the interest rate and repayments will not change during the fixed period.
With a fixed rate, you can avoid worry regarding potential interest rate increases. Even if they increase, your rate will not changed inside the fixed period you choose.
While most fixed rate home loans don’t have the full flexibility of extra repayments that a variable rate home loan does, most lenders will still permit you to make some additional repayments during the fixed period. How much and how often varies lender to lender.
Your loan doesn’t need to be 100% fixed or variable. A mix can give you the benefits of both- certainty around your rate with your fixed home loan portion, and full flexibility to make extra repayments on your variable portion.
Most lenders will offer a fixed rate period of 1-5 years when applying for a home loan with them. Some lenders even offer 7 years or more!
Clearing or refinancing your home loan can be more difficult and costly if you are currently on a fixed interest rate. Breaking the fixed period may incur a fixed rate break cost which can either be small or a substantial sum, depending on interest rate movements.
While there are some lenders who do offer offset on fixed rate home loans, the vast majority do not. If you need an offset account it may be worth considering a variable rate or a split home loan.
There are generally restrictions on how many and how much you can pay in extra repayments on a fixed rate home loan. This can be solved by using a split home loan with a variable portion.
If interest rates decrease during your fixed rate period, you will not receive the lower rates while your loan is still fixed. Once your fix expires, your loan will revert back to a variable interest rate and you should be able to take advantage of the decrease.
Deciding whether to fix your home loan can be a difficult decision with quite a few factors. As your mortgage broker, we will step you through the pros and cons and compare your lender options for you.
Things to consider when looking at fixed rate home loans include:
You will need to provide information on your existing expenses, liabilities and assets. In addition, we will need your address and employment history and basic personal details. Our secure client portal makes providing this information simple.
If you’re an employee, this is generally your two most recent payslips. If you’re self-employed then we will require tax returns and financial statements. If you have investment properties then you will also need to provide rental statements or agreements.
As part of your application, the lender will conduct a credit check which will contain your repayment and credit history. Passing this check is important to any fixed rate home loan application. If you have any concerns about your credit file, please let us know and we can check it ahead of any application.
All fixed rate home loan applications require you have either sufficient savings for a purchase, or sufficient equity for a refinance. If a valuation of your current property is required, we will organise this for you.
As your mortgage broker, Simplifi Lending will review your fixed rate home loan options from over 40 top home loan lenders. We will then:
Visit our Home Loan Application Process page for more information!
Once your loan is settled, Simplifi Lending are your point of contact for all things home lending. We can assist with:
At the end of your fixed rate period, your loan will revert back to a variable rate home loan and it is crucial it is reviewed at this stage to ensure you are still on a competitive offering.
Concerned about a low deposit? We work with lenders who are happy to fund home loans with 90% LVR (10% deposit), and while 80% LVR (20% deposit) is the minimum requirement for some lenders, there are lenders that will allow 10% (or lower in some cases).
Equally, if you have 60% LVR (40% deposit), we will compare and find the very best deal for you from our large pool of lenders.
Want to find out more or ready to get started? Talk to an expert mortgage broker for your free Preliminary Assessment today!
A split home loan is an application that has been structured as partly variable and partly fixed rates. This can essentially be a ‘hedge’ against interest rate movements and provide you with a mix of certainty on the fixed portion and flexibility with your variable portion.
A fixed rate break cost, which can also be called an ‘economic cost’, ‘break fee’, ‘early exit fee’ is a fee payable to your lender if you break your fixed rate loan.
The actual amount of the fee cannot be determined ahead of time, as it is a complex calculation based on loan funding costs and rate changes since the loan was fixed. It can be very minimal or range into thousands of dollars.
Common reasons for breaking a fixed rate are home sales and refinancing to get a better rate or access additional funds.
Generally, the switch from a fixed rate to a variable rate is not a simple or fee-free option. You may be liable for a fixed rate break cost and other fees in order to move your loan to a variable loan.
A rate lock is an option some lenders offer when you are electing to choose a fixed rate. It allows you to lock in the fixed rate at the time you pay the rate lock fee, regardless of whether fixed rates increase before your loan settles.
If you do not take a rate lock, then the fixed rate available on the day your loan settles is usually what you will end up with.
While you can pay a fixed rate home loan off early, there will generally be administration and potential fixed rate break costs associated with doing so. If you expect you may sell or want to refinance your property, a variable home loan may be more appropriate for your needs.
Lenders change may increase or decrease their offered fixed rates all the time, however once you have settled at a specific fixed rate, that is the rate that will apply for the duration of your chosen fixed rate period.
