MY MONEY

Fixed or variable: is now the time to lock in your mortgage?

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Official rates have not moved for more than two years and most analysts are citing no changes are expected for at least another 12 months.

Despite this, homeowners and investors with a mortgage should take care because, as the cost of funding fires up for the banks, we can expect more hikes on variable rates.

The idea of fixing your home loan rate may be on your radar.

There are now quite a few great deals on fixed rates, especially as home loan competition heats up.

lock in home loan fixed-rate

"If you like the security of knowing your rate won't go up, then a low fixed rate could be the answer you're looking for. With rates at near-record lows, now wouldn't be the silliest time to fix," says RateCity's Sally Tindall.

While these rates are certainly tempting, if you can find a fixed loan that is also flexible then the decision to lock in becomes easier.

Some of the key questions to ask are:

- Can you make additional repayments during the fixed term and if so what is the maximum?

- Will you receive a "package discount" on the fixed portion of your home loan?

- Can you offset the fixed interest charged against savings?

- Can you lock in the advertised fixed rate when you first apply for your loan?

Believe it or not, most fixed-rate loans are flexible. Of the 2906 fixed-rate loans on RateCity's database, 2431 of them allow extra repayments, although restrictions may apply.

Less than half of the fixed-rate loans offer redraw; 236 come with a partial offset account while 341 have 100% offset. So much for so-called inflexible fixed-rate loans.

If you really want to maximise the extra repayments you can make without being penalised, then one tip Money often gives is to split your fixed loan into two or even three accounts. This way you double or triple your penalty-free allowance.

Of course, the ultimate price you pay for certainty is that if, for whatever reason, you need to break your contract you will pay. If you're uncertain, you may want to hedge your bets by fixing only part of the loan and leaving the rest variable.

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Maria Bekiaris is editorial campaigns manager for Canstar and former deputy editor of Money. She holds a Bachelor's degree in business.
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