RateCity
The Right Time To Fix
If you are in the market for a home loan, how do you know when it is the right time to fix?
Typically when the gap between fixed and variable rates widens due to either an increase in variable rates or a decrease in fixed or both, it could be the right time to fix.
Another good time would be if fixed rates were not much higher than the average basic variable rate. For example if the difference between the two was only 13 basis points, say the current average basic variable rate was 6.97 percent, and some lenders were offering their three-year fixed loans at 7.1 percent, it could be worth fixing. This means that the basic variable rate will only need to increase by 25 basis points in six months for you to be $500 better off on a $300,000 loan.
Below are some other tips that may help you to decide whether it is the right time to fix your home loan or not.
- A general rule of thumb to follow is that you should only consider a fixed loan when the gap between average variable and fixed rates are less than 1 percent.
- If you think that rates will rise in the future and fixed rates are lower than normal it could be a good time to consider fixing.
- When interest rates are on the upwards direction of the cycle it should also be a good time to fix. Just be sure to work out how much variable rates have to increase before you can save with fixed rate home loans.
- When shopping around for a mortgage, do your research which includes comparing the difference between both fixed and variable rates. To see what is on the market, compare home loans online at comparison sites like RateCity.
- A good time to choose a variable loan is when interest rates have reached their peak of the cycle and are likely to start falling. Avoid fixed rates at this time.
