The right time to switch to fixed interest rates

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Experts advise that when we near the end of the interest rate cycle that when it’s time to start fixing rates. But how do we know for sure that the right time is approaching?

Fixing your home loan rate is a hard decision to make. When some Australian banks set about increasing their fixed home loan rates it can make variable interest rates look more attractive.

However, by staying with a variable rate some borrowers could end up missing out on fixed deals when interest rates climb back up.

If you’re having a hard time deciding to fix, here are some arguments for and against:

Pros of fixing

Fixed rates will allow you to budget your finances accurately over the life of the fixed term
You’ll know exactly how much interest you need to pay each month regardless of any RBA changes

Cons of fixing

You can only make minimum repayments so there’s no advantage of reducing the interest on your loan
You may have to pay a penalty if you move house or pay back your loan early – known as break costs or early establishment fees

Related Search: Variable Rate Mortgage and Fixed Rate Mortgages

RateCity Staff

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FAQs

Tip: You can use RateCity how much can I borrow calculator to get a quick answer.

How much money you can borrow for a home loan will depend on a number of factors including your employment status, your income (and your partner’s income if you are taking out a joint loan), the size of your deposit, your living expenses and any other debt you might hold, including credit cards.

A good place to start is to work out how much you can afford to make in monthly repayments, factoring in a buffer of at least 2 – 3 per cent to allow for interest rate rises along the way. You’ll also need to factor in additional costs that come with purchasing a property such as stamp duty, legal fees, building inspections, strata or council fees.

If you are planning on renting the property, you can factor in the expected rental income to help offset the mortgage, but again it’s prudent to add a significant buffer to allow for rental management fees, maintenance costs and short periods of no rental income when tenants move out. It’s also wise to factor in changes in personal circumstances – the typical home loan lasts for around 30 years and a lot can happen between now and then.

The right time to switch to fixed interest rates

Related articles

What is a cooling off period, and how do they work?

Rate rises: how the banks could ruin Christmas

Save on your mortgage, update your kitchen

5 ways to save your home deposit faster

Today's top home loans products

Discount Offer Variable Home Loan OO P&I ($200k+)

Cash Back Hero Variable (Principal and Interest) (LVR < 80%)

Discount Variable Home Loan ($150k+) (LVR < 80%)

Yard Home Loan (Principal and Interest)

Popular home loans searches

FAQs