Whilst many of our clients are grasping for fixed rates in the current environment, it is important to remember that there are limitations and pitfalls to watch for when fixing your loan.
Fixed loans have a certain rigidity and may limit the amount that you can pay off per annum, and also prohibit the full use of an offset account. There are also some fairly heavy penalties for discharging a fixed rate loan ahead of its expiry date.
A good option to consider is splitting your home loan into fixed and variable, with the variable portion giving you access to early repayment and an offset account, for the fixed rate period.
Using this strategy, you can maximize the benefit of fixed rates, whilst still allowing yourself the ability to reduce your loan quickly.
When choosing a fixed rate term, carefully consider what the banks are offering in comparison to market projections, and that conversation is probably best had with your mortgage broker or financial planner. As a general rule, the longer the fixed rate, the greater the margin the banks build in (to compensate for any possible error in their projections).
The banks will always project their fixed rates based on where they believe the economy is heading, and it is sometimes difficult to out-guess their projections. However, if you time it correctly, there are definite benefits to choosing a fixed rate as a strategy.
If you wish to discuss this further, please don’t hesitate to contact me on 0437 922 210 or email@example.com
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