This is a very common question. The main reason why you may want to consider a fixed rate product over a standard variable is if you wish to have certainty in your home loan repayment over a period of time. There are limitations to a fixed rate product. Here are a couple of key thing questions you need to ask.
- Am I selling my property during the fixed loan period? If you sell your property during the fixed term, a break fee may apply for breaking your fixed term.
- Do I need an offset account? Most fixed rate products does not come with an offset account.
- Are you looking at making extra repayments off my loan? Some lenders may offer redraw facility but there will be a restriction on how much extra you can repay each year when you fix your loan e.g. no more than $10,000 extra repayments per year.
- What balance of fixed and variable rates do I need for my portfolio? Even if you only have one loan, you can usually split the facility with a portion being fixed and the rest being a variable loan, giving you the flexibility you need. Often beginning investors choose to lock in 50% of their loans, while investors with larger portfolios protect themselves by fixing a larger percentage of their loans.
- How long should I fix my loan for? Now this is a difficult question, but if you believe that interest rates won’t increase for a year or two and after that they will remain high for a number of years, then fixing for a short period such as one or two years may not make sense. It all comes down to what are you looking to achieve and does it meet your goals and objectives