Is now the time for a fixed rate?
INTEREST rates appear to be on the way down and some lenders are now aggressively advertising fixed rate loans.
Moving from a variable rate to a fixed rate is always a tough decision to make but when considering changing loans, or even changing lenders, it's important to compare like with like.
A useful guide is the comparison rate sheet which all lenders are required by government legislation to display, but keep in mind that it is only a starting point. Even though it includes the basic loan costs such as set up fees, interest rates and ongoing charges it does not include bank fees that are only charged in certain circumstances. These include fixed loan early termination fees and redraw fees.
When looking at some of the ads currently running, I am amazed at the difference between the base rate and the comparison rate. And don't forget, the comparison rate is the effective rate that you will be paying.
But there is more to a loan than the interest rate and the fees and charges. One of the most important things to consider is flexibility. Now you might believe that a no frills loan with low fees is perfect for you right now because your affairs are simple and your present intentions are to stay in the one house for many years, but keep in mind that change is always with us, and your present loan may not be appropriate if things change.
What happens if you decide to move house, or borrow some money for renovations or investment, or need to reduce your repayments as the kids are at high school. If you have one of the no frill loans it generally won't have a redraw facility and you may be required to take out a second mortgage for the extra money. Naturally the bank will be looking for a higher interest rate on the second mortgage and the extra fees could wipe out all your initial savings..
Noel Whittaker is a director of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is email@example.com