Expert Advice: by www.WeFindHouses.com.au
Fixed interest rates are currently the lowest they’ve been in years. In fact, the last time they were anywhere near this low, we were in the middle of the GFC.
This puts mortgage-holders in the enviable position of being able to negotiate a fantastic mortgage deal, with fixed rates being offered at or below 5%.
We’re actually enjoying a sustained period of low rates, as mortgages have been offered in the 5% range for the last 12 months. When you consider that in a strong economy, the average mortgage rate hovers at around 7-8%, it’s clear that home loans at present offer excellent value.
For some borrowers, this could be the perfect opportunity to lock in some long-term savings with a three-year or five-year fixed rate.
That’s not to say that simply because interest rates are low, you should rush to fix. There’s much more to a good mortgage than the rate, and you need to actually look beyond the interest rate on offer to decide whether a fixed loan makes sense for you.
These are the three criteria I always consider, and I urge my clients to consider, when reviewing home loans:
This is probably the most important point you need to contemplate. If you need a flexible loan product then a fixed rate is not the way to go, as the costs incurred to break a fixed loan can be substantial. Consider: are you planning to hold the property long-term? Is there any chance you will want to sell it? If your finances hit a rough patch, could you still afford to keep this home or would you need to offload it? If the answer to any of these questions veers towards yes or even maybe, then you’re better off sticking with a flexible variable rate loan.
If you have clear goals mapped out, you can evaluate your plans for your investment property and decide whether a fixed rate fits with those plans. It is so important to have a clear investment strategy when you start buying real estate, so you can build your portfolio with purpose and intention. Many property investors jump in before they know quite what they want to achieve – other than making money, that is! – and this is where you can run into trouble.
Does your monthly budget leave you with a little wiggle room to play with? If not – or if you like the idea of knowing your set mortgage amount each month – then a fixed rate is a great way to lock in some repayment security. Remember, you don’t have to fix your entire mortgage amount: you can fix part of your loan so that you create some payment consistency, without locking your whole mortgage into a fixed rate.
If you’ve evaluated your needs in light of all three criteria and you’re still convinced that a fixed rate suits you best, then get on the phone to your broker and start hunting down the best deal you can find. You may wish to consider a rate lock, as banks can change their fixed rates at any time, and a rate lock is an option that allows you (for a fee) to guarantee that rate for up to 90 days.
But don't fix rates in an effort to "beat the banks" because you will almost never succeed – and you could end up locked to a property that doesn't suit your needs a couple of years down the track.
Also please consider that the NAB yesterday raised their fixed rates on all their products between 0.2% and 0.24%. So where one of the major banks go, the rest are sure to follow.
Call me on 0431 315 134 or email firstname.lastname@example.org to discuss your fixing options and to review your current lending position.
Kelby Wooldridge is the Finance Broker for We Find Houses
Australian Loan Company
We Find Finance
Paul Wilson is an Independent Property Investing Expert and the founder of We Find Houses, Educating Property Investors & We Find Finance. Paul has been educating and coaching investors since 2001. Paul provides valuable, independent guidance and support by teaching strategies on how you can invest successfully while protecting yourself from commission hungry sales agents and property spruikers. Protect yourself with knowledge, contact Paul today for a complimentary consultation on 1800 600 890 or email email@example.com
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.