Fixed Rates In The Current Melbourne Home Loan Market?
We are entering into a very interesting time in the home loan market and at present
one of the most commonly asked questions is should I fix my rate?
Now there is never a Yes or No answer directly to this because everyones circumstances are different and some needs analysis has to be undertaken, however, I will say that with rates entering historical lows again that it is certainly a very good time to consider fixing some or all of your current home loan. And this makes even more sense if you have more than one loan or an investment property.
So lets explore firstly why people fix their rate in the first place. Primarily it is for the interest rate certainty over the foreseeable period of which they are fixed. Many things come into consideration such as birth of a child, going back to 1 wage or changing jobs that may see you consider this option. For others, its simply the benefit of taking advantage of very low rates or hedging your bets.
When considering taking a fixed rate, you need to take into account the following:
Less flexibility with paymentsi.e. changing your terms during a fixed rate period without penalty is more difficultWhen considering taking a fixed rate, you need to take into account the following:
Cant make additional payments (some lenders now allow between $5k & $10k per annum but you need to check this 1st)
Cant redraw additional payments
Generally cant have a full offset account linked to your fixed rate loan (some lenders allow partial offset)
If you were to sell your property, you need to transfer the debt to another property otherwise pay it out and suffer any penalties imposed.
For the restricted flexibility you get a fixed price for a fixed term that guarantees you that your payments wont change over that said term.
So, is it worth it?
Well I would argue that Yes at present it is most definitely worth considering and if you are not planning on selling your home or investment any time soon then you may want to fix the whole amount OR what is now much more frequently done, is to split your loan into 2 components 1 x variable that allows you to keep all the benefits of a variable rate such as additional payments, redraw, an offset account etc. & then the 2nd portion at a fixed rate that gives you the rate certainty and ability, at present levels, to lock in a very low rate.
Why are we suggesting this?
Well over the long term averages, any fixed rate that has been in the mid to low 5% range has proven to be an outstanding rate. Right at the moment we are heading to those levels and therefore it is worth the consideration. 2 & 3 year fixed rates are presently starting as low as 5.59% and 4 & 5 years fixed are in the low 6% range.
I hear you say that Australian and therefore Melbourne Home Loan variable rates may still drop lower and therefore the fixed rates may also get cheaper well they may BUT generally the fixed rates have already factored in future interest rate movements and therefore these rates are already reflective of what lenders believe the future interest rate markets hold. Conversely, when rates are increasing, fixed rates generally look very unattractive as the lenders have also, already factored these in.
Its all about what the markets dictate that the future may hold. I will state categorically that there is never the perfect time (if we knew this, well life would be boring wouldnt it?) but based on historical data, I do believe that we are now entering very good times to consider hedging your bets and taking some or all of your current lending and placing a portion into fixed rates.
by: Andrew Miriams
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