What could you save by locking in your home loan rate now?
Sometimes it can feel like you need a crystal ball when deciding if you should fix your home loan. With the government regulator tightening regulations and banks hiking interest rates, is it finally time to think about fixing?
There are a few factors to consider when deciding whether to fix your mortgage. If you're someone who likes to budget, knowing how much your monthly repayments are is ideal. It's a good way to get stability into your finances.
But Australians are notoriously bad fixers. In March 2008, 25% of new loans were 'panic fixed' when the RBA cash rate was at 7.25% - the highest cash rate since the 90's. This meant a quarter of people missed out on a 3-percentage point rate drop over the following year.
While it may be a difficult ask for everyday Aussies to predict a global financial crisis, it's worth keeping a big picture view on how the cash rate is tracking.
Fast forward nine years and the cash rate is now at historic lows, which means it's no longer a crazy idea to fix.
Factor in the RBA's long-term intention to lift rates and the likelihood of the banks continuing to hike independently, and the bell might have rung on the bottom of the cycle.
Over the past six months fixed rates have already started to tick up, so if you fixed your loan at 4.15% in January 2017 (average 2-year fixed loan rate for owner-occupiers paying principal & interest) you'd be 19 basis points better off than today.
This would mean a saving of $55 a month or $1320 over the two-year fixed period, based on a $500,000 loan.
Keep in mind that once you've fixed, there are still plenty of traps you can fall into.
One of the biggest ones is that fixed rates revert to a variable interest rate at the end of the term, which may be higher. Just make sure the rate is still competitive.
Whatever loan type you choose, it is important you make sure you can afford a 2% to 3% rise because while you may have fixed for up to five years, your home loan will be around for a lot longer.
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