In an environment of record lows and with the population in lock down the temptation to fix your rate might be really strong right now. I thought it might be a good time to go through the pros and cons of fixed rates.
I still have a few clients that fixed a few years ago when again we had record low rates of 6.5% While it might have seemed like a good idea at the time we now have fixed rates at 2.19% Fixing your rate can be a little like betting against the house in the Casino – the house always wins.
So why would you do it?
Fixed rates offer certainty. You know exactly what you are going to repay for the next 1 to 10 years and that can be a great thing.
Fixed rates also give the lender certainty you will stay with them for a set time. If you break that fixed rate early you may pay a break cost.
You are also limited in the amount of additional repayments you can make.
You may not be able to use offset on a fixed rate – although some lenders do allow a partial offset.
Partial offset is where the portion of the home loan that is equal to the amount you have in your offset account is charged a lower rate. This varies from lender to lender. It’s important to understand the impact of partial offset versus the full offset you may get on a variable rate loan.
Certainty is a big reason to fix your rate. Where I have clients about to take a large amount of time off to have children or return to study. It can also be a good strategy where you have an investment property and want to make sure your rent will cover repayments long term.
Of course, we are in a different environment now and the temptation to fix in a 2.19% rate is strong. Think carefully as the actual savings on a fixed rate versus variable is going to be about $700 a year or under $14 a week.
Message me if you are thinking of fixing as I would be glad to chat.