Low fixed interest rates have given young Aussie first home buyers and seasoned investors the confidence to buy property.
The key reason is that fixed rates offer buyers the opportunity to plan ahead, treating their home loan as a regular bill rather than an unknown variable. A fixed rate home loan allows you the opportunity to lock in an interest rate for the fixed term period. For example, a 3 year fixed term home loan will remain at that rate for 3 years regardless of variable interest rate movements.
Most lenders place restrictions on their fixed rate loans such as:
However, some lenders will allow unlimited extra repayments, let you redraw extra repayments and attach an offset account to the fixed rate home loan. A Trusted Mortgage Broker will advise you on all of these options. An assessment of fixed rate versus flexible features will need to be considered before selecting any fixed rate home loan to ensure you receive a home loan that is not unsuitable for your individual needs.
Always be mindful that break fees can cost you thousands of dollars. You should refer to the terms and conditions of your home loan for the specific situations where you may be charged a break fee.
The lender will charge a break fee if:
THE PROCESS OF FIXING INTEREST RATES
When a lender gives you a fixed interest rate loan, they obtain the funds for the loan through a transaction at wholesale interest rates.
WHAT ARE BREAK COSTS?
Break costs are an amount equal to the lenders reasonable estimate of their loss arising as a result of you breaking your loan when it is at a fixed rate. The lender suffers a loss when wholesale market interest rates fall between the start of the fixed rate period and the time you break the fixed rate period.
You break a fixed rate period on your loan when, during the fixed rate period:
WHEN ARE BREAK COSTS PAYABLE?
Break costs ARE payable on your fixed interest rate loan when:
WHY ARE BREAK COSTS NECESSARY?
When you break your fixed rate period, the Bank has to break its wholesale interest rate arrangements and, if wholesale market interest rates have dropped, this causes a loss to the Bank.
HOW ARE BREAK COSTS CALCULATED?
The lenders calculate break costs using the break costs method set out in the General Terms and Conditions of your loan agreement. The break costs method estimates the lenders loss but does not necessarily reflect any actual transaction that they may enter into (either before or at the time of the break). Break costs are calculated on wholesale market interest rates. Those rates may not be the same as the fixed interest rate for your loan or other fixed interest rates that apply to their other products. They may be lower or higher.
With our historically low fixed interest rates, many customers continue to choose a fixed rate home loan. To protect our customers and ensure they get the fixed rate we have offered to them we have a rate lock guarantee that we can discuss with our clients. This will ensure that they are not caught out by fluctuations in fixed rates between approval and settlement, enhancing their ability for rate security.
What is a rate lock?
Rate Lock guarantees the customer the fixed or guaranteed interest rate of their choice for 90 days and it can be applied anytime during the home loan application. The 90 days may vary with each lender.
Trusted Mortgage Broker has a great range of mortgage calculators to help with all those tough decisions that come with finding the right loan. Have a look at our calculators on our website to help you further.
Specialist mortgage broker Sue will guide you to find a solution to purchase a property Excited? You should be Come and find out how Sue helped others who never thought they would own a property