If you're about to buy a house or you're looking to refinance you may be asking yourself, should I fix my home loan or not? Especially with interest rates at an all-time low.
Fixed rate home loans are usually for a set period of time - often 1, 3 or 5 years and have the following benefits:-
- Makes budgeting easier - You know exactly what you're repaying. Whereas with a variable rate loan your repayments can 'vary' as rates change.
- Rate rises don't matter - If interest rates rise above your fixed rate, you will be happy knowing you are paying less than the variable rate.
The potential downsides to fixing your home loan interest rates include:-
- Rate drops - If rates go down below your fixed rate you will be repaying more than the variable rate and you won't benefit from the rate drop.
- Can you make extra repayments? - Extra loan repayments are often not allowed if you have a fixed rate. Variable rate loans usually allow you to make extra repayments at no cost.
- Break fees - Fixed rate loans may also have a break fee if you change or pay off your loan within the fixed rate period e.g. if you sell your home
Check all the terms and conditions of the loan so you know what you are up for.
The best of both worlds
Another option is to make a bet both ways and only fix part of your home loan.
Some people fix 50% of their loan and keep 50% as variable to manage some of the risk of interest rate rises while still being able to make extra repayments.