Fixed rate home loans are hot, just don’t get burned!

If you are looking at a new home loan or thinking of refinancing, there has never been a better time to snap up a fixed rate home loan. Fixed rate loans have been slashed to record lows with more than 50% of 1 year loans and almost 40% of 3 year fixed loans now below 5.00%.

While there are red hot fixed rate bargains out there which can save you a stack of cash, before jumping straight in there are few quirks to fixed rate loans which you need to be aware of so that you don’t get burned if rates or your circumstances change.

1. Less flexibility

Fixed rate loans are less flexible than variable loans. The ability to make additional payments can be limited and penalties generally apply to early loan payout.

If you’re in the position to make extra repayments on your home loan, consider fixing half of your loan and keeping the other half variable so that you can pay that half down faster while still getting the benefit of a low fixed rate on the other half.

2. Punitive break costs

While fixing 100% of your home loan right now can save you money on your monthly repayments, if rates go down again (which is still likely) you could be stuck paying a higher rate than other borrowers. Break costs on fixed loans can run into the thousands of dollars so think about either splitting your loan or choosing a shorter loan term (1 year instead of 3 for instance) so that should rates change you will not be left out of pocket.

3. Revert rate rort

With some fixed rate home loans the low fixed rates can revert to extremely high ongoing variable rates after the initial fixed rate term is up. Be prepared to re-evaluate your rate when the fixed rate term ends and switch again if you’re being charged too much, otherwise you could end up paying more interest over the life of the loan then on a normal variable rate loan.

Top 5:  1 year fixed rates

Provider

Loan

Rate %

Greater Building Society

Fixed Rate Home Loan (Ultimate Home Loan Package)  

4.54

Newcastle Permanent

Fixed Rate

4.59

UBank

UHomeLoan – Refinance only

4.68

eMoney

Full Doc (Pro Pack)

4.77

iMortgage

iMortgage Fusion Fixed (ProPack)

4.79

Top 5: 3 year fixed rates

 

All rates shown available for a $300,000 mortgage with an LVR of 80% and where 100% of the loan can be fixed. Current at 1st July 2013.

 

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Fixed rate home loans are hot, just don’t get burned! was last modified: July 10, 2013 by Mozo

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