The main thing that should influence your decision to fix you home loan is whether or not there is a chance you may need to break the loan before the end of the fixed period (such as selling your home). If the interest rates have gone down in the time before breaking the loan you will be required to pay a break out cost. However if the interest rates go up during that time it is unlikely your financial institution will pay you the difference which is in your favour.(Some banks actually do)
If your budget is tight and you enjoy the certainty of a fixed expense then a fixed loan will be a good option to set your budget. Also as can be seen from the graph below we are at 20 year lows in our interest rate cycle.
Nobody knows whether the rates will continue to fall but banks are predicting that they will, given that the 3 year fixed rate is lower than the current variable rate. That being said in 2008-2009 the banks had forecast a similar situation but the 3 year rate jumped considerably in a very short space of time. The cause being a rapid interest rate drop on the back of the Global Financial crisis followed by a dramatic rise in rates on the back of the governments stimulus package which improved the economy. There are too many factors to list that influence the RBA's decision to change the interest rate but generally the economic health of our economy dictates rate drops and rises. When the economy falters interest rates are typically cut and the reverse is true as our economy strengthens.
Each persons financial situation is different so no hard and fast rule applies. Typically though as interest rates continue to fall investment by companies and households grow giving rise to improvements in the economy which in turn can influence the RBA to lift rates. Some people that I see fix some of their loan while keeping the rest on variable to hedge their bets. If you are unsure about what to do with your loan speak with your financial adviser, banker or accountant to work out the best way to go.
I have to agree that getting the help of a financial adviser would be best if you want to make the best decision. There are some mechanisms involved with mortgage that are difficult to understand for laymen, such as discount rates, mortgage insurances, and interest. Also, there is the economic landscape to consider and how it is expected to turn out in the near future. If you think you’ll have a hard time wrapping your head around all these, it would be best to avail the services of an expert.
ReplyDeleteSara Owens
It’s important to consider your financial standing when you’re planning to fix your loan. With the proper assessment of your budget and advice from bankers, you can pursue your home loan without thinking much of problems regarding your financial needs. You’re not being discouraged from getting home loans, you just have to know your financial limits before pursuing this.
ReplyDelete-- Oscar Lang
Banks and other financial institutions are having lots of studies regarding the rise and fall of interest rates. As the results of their computations, engaging in home loans this year is a great decision. This is one thing that invites people to take out a loan and get their dream home, but it must be clear that you must have the financial capacity to pay for the loan. Seek the help of the financial institutions who are willing to serve you.
ReplyDeleteCarmen Monrovia