If you’re one of thousands of homeowners who’ve just come off a fixed-rate deal with their bank, you may wonder whether entering into a similar agreement is a good idea.
Lenders are using attractive fixed-rate deals to compete for customers, both first-time buyers and existing homeowners, but is the time right to enter into such an agreement?
With Australia’s base rate currently at 4.1%, many pundits think we’re close to the end of this period of increases, which aims to bring our inflation rate back down to a target of 2-3% after peaking at 9.1%.
In truth, you need a seriously reliable crystal ball to know whether locking in another rate now is a smart move.
A fixed rate will give you the peace of mind that your repayments will again be consistent, but you could miss out on savings if the Reserve Bank of Australia starts to bring down the base rate and lenders pass on the reduction.
Below, we’ve outlined some important considerations when deciding on a mortgage deal. But you should always consult a financial professional before making a decision.
Everyone is different
Your circumstances will dictate the best type of loan for you. Often, the lowest interest rate offers the least flexibility. So, don’t assume the cheapest deal is best for you.
Professional advice
You don’t have to work this out alone. Consider asking a financial adviser or your accountant about the best approach. Given the amount of money at stake, it makes sense to ask the experts.
Fixing options
You can set your entire loan or a portion of it at a fixed rate. Mortgage brokers and lending officers can advise you of the specifics of each offer.
Loan length
Be aware that the loan term will affect your monthly repayments. As a rule, the longer the term loan, the lower the repayment. However, you can end up paying more in the long run.
Your budget
The monthly payments should fit your budget comfortably. Consider all associated costs, such as the principal, interest and insurance.
Down Payment
If you’re a first-time buyer, you can reduce your repayments significantly by having a 20% deposit.
Penalty pains
Check for penalties if you pay off the mortgage early. You should avoid these deals if you want to refinance at some stage or pay off your loan early.
Shop around
And, of course, there’s no harm in talking to various lenders to see if you can improve your deal.
NOTE: The information in this article is general in nature and provided as a market overview only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.