Useful Tips

Fixed Rate Loans

Every lender has their own terms and conditions, and this is intended only as a general guide to understanding this topic. Contact us to discuss your individual circumstances.

Definition
A fixed rate loan means that for a set period of time the interest rate that you pay, and therefore your monthly repayments, remain the same. The time frame is commonly 1 to 5 years, however longer terms are available.

At the end of fixed rate term, the loan will usually switch to a variable rate, unless you notify the lender otherwise.

Fixed Rates are influenced by the money market and the broad expectations of where interest rates are heading in the long term. They are not directly linked to the Reserve Bank Cash Rate or the lenders variable rates.

Benefits

  • The security of knowing what your repayments will be for a fixed time can help with your cash flow and budgeting.
  • If interest rates rise your fixed rate will remain the same, and you may pay less than the variable rate.

Disadvantages

  • Repayment flexibility may be lost. Most lenders restrict or won’t allow additional repayments. Redraw of any additional funds that have been paid into the loan may also be restricted.
  • Break costs or exit fees can be substantial, if the loan is paid out during the fixed rate term. Regardless of whether you are terminating your loan due to selling your property, paying out the loan, re-financing the loan, changing the loan to a different type with the same lender.
  • If interest rates drop your fixed rate will remain the same, and you may pay more than the variable rate.

Things to consider
How long do you intend to keep the property?
What is the comparison between current variable rates and fixed rates.

Sitting on the fence/Best of both worlds….You may also choose to fix part of your debt, retaining part as a variable rate loan for flexibility and have a combination fixed/variable rate loan. Some lenders may charge you set-up or maintenance fees for split loans.

Lenders fix their rates at different times during the application process, settlement, application or approval. Fees may be applicable to lock-in your fixed rate prior to settlement.