Do you know how important to have a fixed rate loans guide? With interest rates at an all-time low, and many lender’s fixed rates lower than their variable options. Locking in an interest rate on your home loan to guard against possible future fluctuation may be attractive. However, it pays to know the ins and outs of fixed-rate loans before committing to one.
When purchasing a property, borrowers can generally decide between fixed-interest loans.
Fixed-rate loans usually come with a few provisions:
Borrowers have restrictions to maximum payments
This is during the fixed term and can face hefty break fees for paying off the loan earl. Selling the property or switching to variable interest during the fixed rate period. However, locking in the interest rate on your home loan can offer stability.
“For those conscious of a budget and who want to take a medium-to-long term position on a fixed rate, they can protect themselves from the volatility of potential rate movement,” a finance broker says.
Fixed rates are locked in for an amount of time that is prearranged between you and your lender.
“There are some lenders that offer seven-year or 10-year fixed terms, but generally one to five years are the most popular,” the finance broker says.
“The three and five-year terms are generally the most popular for customers because a lot can change in that time.”
Fixed-rate loans can also be pre-approved.
This means that you can apply for the fixed-rate loan before you find the property you want to buy.
“When you apply for a fixed rate, you can pay a fixed rate lock-in fee also known as a ‘rate lock’.
“Depending on the lender, give you between 60 and 90 days.”
“From the time of application to settle the loan at that fixed rate.”
“It will also depend on the lender as to whether the rate lock will be applied on application or approval.”
“It is important to be clear on this issue as it has been known to be a common point of error.”
Pre-approval helps you to discern how much money you are likely to have approval on official application.
Knowing that your potential lender will offer a fixed-term fixed interest loan. This gives further peace of mind for those borrowers looking to budget precisely.
In addition, borrowers should consider the possibility of arranging a ‘split’ loan. This option allows you to split your loan between fixed and variable rates – either 50/50 or at some other ratio.
This can allow you to ‘lock in’ a fixed interest rate for up to 5 years on a portion of your loan. While the remainder is on a variable rate which may give you more flexibility.
Interest rates change and potentially minimise the risks associated with interest rate movements.
Also, be aware that at the end of the fixed-rate term, your loan agreement will include information about how the loan will then be managed by the lender, usually to a ‘revert’ variable rate – which may not be the lowest the lender offers.
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