THE RISKS AND BENEFITS OF ENTERING INTO A FIXED RATE HOME LOAN
At Blue Key Finance we're submitting more fixed rate home loans than ever before. Given this, we have noticed most of our clients were not aware of the intricate details of these home loan products. The list below will empower you with future loan choice decisions.
- A fixed rate is, by its very nature fixed, and will not decrease if variable rates do. So, forecast what you believe interest rates will do during your initial choice of fixed rate period and decide whether you still want to fix an interest rate in. please note, you can split your total home loan amount into a variable portion if forecasting is too difficult.
- Significant break costs may be incurred if the fixed rate loan is paid in full during the fixed period. Some clients have to discharge the loan earlier than the expiry of the fixed rate period because of either divorce proceedings, foreclosure of their home, or even selling earlier than expected.
- Extra repayments may not be possible or may be limited to a fixed amount per year. Most lenders allow extra repayments of up to $10,000 p.a., while others cap it at $20,000 during the fixed term.
- Break costs may also be payable on a lump sum (partial) repayment during the fixed term. If you go above and beyond the dollar value of extra repayments allowed per year, you may be hit with this extra charge.
- The fixed rate on offer may increase (or decrease) during the period from the loan application to settlement of the loan, and that the fixed rate applicable to the loan will be the one applying at the time the loan is settled.
- A rate lock facility is available usually for a cost of 0.15% of the fixed loan amount. Its purpose is to hedge your risk in case fixed interest rates will rise from the time you sign a contract of sale to settlement of your loan. Some lenders will offer this for free while some offer this facility for just a 60 day rate lock term instead of 90 days; and
- Remember, you can commence your home loan initially on a variable rate product and at any time switch to a fixed rate with your chosen lender for about a $350 switch fee.
If in any doubt, remember to consult expert advice from Blue Key Finance before committing to a 30 year loan term.