Borrowers can now lock in a rate as low as 4.99% over a 5 year term; comfortable in the knowledge that their repayments will not increase over this quite lengthy period. In deciding whether to lock in your interest rate, the following factors need to be weighed:
- Whether variable rates are likely to fall further (and therefore put you at a disadvantage if you have chosen to fix your rate). On this question, with the RBA rate already at just 2.5%, many commentators believe there is little scope for rates to fall much further, while they may increase if the economy improves or inflation picks up.
- Fixed rates give you the ability to plan ahead with certainty. Variable rate loans are often more feature-rich. For instance most fixed rate loans do not offer an offset facility whereby you can place your income into an account and the balance of that account is offset against your loan balance resulting in a reduction of interest costs. If you pay out a fixed rate loan early (either by selling the property or refinancing) you may incur break costs. Depending on the amount of the loan, these charges can be significant.
Of course, the choice is not necessarily either/or – many choose to fix just a portion of their loan, and on the remaining balance enjoy the flexibility and benefits of a variable product. In deciding which option is best for you, consult with your financial advisor.