Fixed Interest Rate
Fixed interest rate home loan & mortgages are available within most lending institutions within Australia. When considering a home loan, one must ultimately choose the loan which best suites the needs of the borrower. Yet many people are unaware how a fixed rate home loan works, and what advantages it can give. In simple terminology, fixed rate home loans involve an interest rate which is fixed. Hence the interest rate on this type of loan does not move within the specified period nominated by the borrower.
Benefits of fixed rate home loans?
Many people who elect to take on a fixed rate home loan do so for peace of mind. By knowing your interest rate as a definite, one knows what he will be paying on his mortgage over the nominated period. This allows a person to manage his finance budget more precisely.
What are the cons of a fixed rate home loan?
Although the interest rate is fixed, many lenders put restrictions with fixed rate loans. One of the biggest downturns is you don’t get the benefit of interest rate decreases whilst your loan is fixed. Hence a borrower can be caught paying a higher interest rate for the nominated period if rates fall. Further, breaking a fixed rate home loan can trigger off break costs. Break costs are expensive exit fees associated with breaking a fixed rate contract. A simple way to understand them is by thinking of how a mobile phone contract works and how you can be paying large fees to get out of a contract.
Are fixed rate loans restrictive?
As a general rule, most fixed rate home loan lenders are restrictive in terms of features. Many fixed rate home loans do not offer you the ability to make excessive additional repayments. As a guide, most lenders do not allow you to make more than $5000 – $10,000 in additional repayments in a single year on top of your minimum repayment. Many lenders also do not allow you redraw on a fixed rate loan.
Lenders who offer flexible features with a fixed rate loan?
There are several major lending institutions who offer flexible features with fixed rate home/investment loans. Although, most lenders are restrictive with how much extra you can pay on top of your minimum repayment, there are a handful of lenders who do not have this restriction. Hence some lenders allow you to make bulk lump sum additional repayments on a fixed rate home loan. There are also some lenders who also allow you to redraw all extra repayments made into the loan.
There are also some lenders who will offer either a partial offset or a 100% offset loan feature as part of a fixed interest rate home loan.
How long can one fix their home/investment loan for?
Different lenders offer different fixed rate terms. Basically this means that depending on the lender, you could have any of the following fixed rate terms;
- 1 year fixed home loan
- 2 year fixed home loan
- 3 year fixed home loan
- 4 year fixed home loan
- 5 year fixed home loan
- 7 year fixed home loan
- 10 year fixed home loan
- 15 year fixed home loan
In any of these periods, the interest rate will neither increase nor will it decrease.
Do all lenders offer fixed rate loan?
Most lenders offer fixed rate loans. However, there are a hand full of lenders that do not offer fixed rate loans at all, and others who do not price them well in order to not write this type of loan. There are other lenders, who might only offer 1-3 year fixed interest rates.
Do all lenders offer similar interest rates on fixed rate home loans?
Not all lenders offer the same pricing modules on fixed rate loans. As a guide, whenever you compare a fixed rate home loan between various lenders, you will find that on a particular term, most lenders will have pricing within 0.1% – 0.5%. In some instances, there are times when the variance between lenders can be even higher. Knowing the term of the fixed period, one can immediately work out his savings between lenders.
Can a fixed rate home loan be packaged within a professional package?
Fixed interest rate home loans can be packaged up and discounted under a professional package loan. Some lenders will also offer discounts on the advertised interest rate available on the day of application. The discounts can vary depending on the loan amount.
Can a fixed rate home loan be packaged under a low doc?
Fixed rate home loans can also be put under a low doc loan structure. This can also be put simultaneously with a partial offset or 100% offset loan feature even under low doc!
What is a fixed rate lock?
When you apply for a fixed rate home loan, you are offered the rate available on the day of application. Since a settlement of a loan can take 3-6 weeks, there is the chance that rates can fluctuate in this period. Hence it is not guaranteed that you will get the same rate on settlement as the date you applied for the loan.
In this case, lenders have introduced a rate lock fee to hold a particular rate for up to 90 days from the date of application to stop an interest rate from increasing between application date to settlement. This rate lock fee is generally charged by most lenders who offer fixed rate loans, but not all. The method of calculating the rate lock fee on a fixed rate home loan differs from lender to lender. As a rule, some lenders can charge a flat fee like $90 to a one off percentage charge of loan amount like 0.15%. This will translate into a one-off $300 charge on a $200,000 loan.
It is worth noting that there are few lenders who will give the rate lock for FREE!
At Mortgage Providers, our consultants are familiar with different lenders pricing s and polices regarding fixed rate loans. Our consultants know how to package up the most flexible fixed interest rate home loan, giving negotiating the cheapest discounted interest rate, with all the flexible features, without the client incurring rate lock fee charges.