The tipping point with interest rates seems to be getting close. We are seeing the major lenders moving on their fixed rate offerings with some increases occurring in the 3 to 5 year fixed terms. Generally when the major lenders move on interest rates the other lenders are not far behind.

The RBA will meet again in the first week of December to announce any changes to the cash rate but the movement in longer term fixed rates from the banks is interesting. This is the first upward movement in longer term fixed rates this year.

There are still some good deals around and now may be the time to consider fixing part or all of your borrowings.

Please give our office a call if you would like to discuss your situation, as fixing your loan will not be beneficial for everyone.

Follow this link to a You Tube video from @NAB discussing the different considerations for fixed rate loans.

Six factors to consider when deciding whether to fix….

Certainty of your repayment period…
Fixing your mortgage will give you certainty of your repayment amounts for the fixed term period which will appeal to some borrowers, especially investors.

Additional repayment restrictions…
There are some restrictions on paying extra amounts of the loan principal during a fixed period. If you pay above the threshold (generally $5K – $10K per annum depending on the lender) the bank will deem that you have broken the fixed rate contract and penalties will apply for the amounts paid over the allowable limit.

Paying the loan out early…
Penalties may also apply if you repay a fixed rate loan before the fixed term expires. In some cases these penalties can be very expensive. When looking at a fixed rate loan you need to consider all factors including lifestyle changes (marriage, children).

The portability option…
To avoid the break costs attributed with paying the loan out early most lenders now have the option where you can take your existing loan to the next property, which is called portability. Portability however does require that the settlement for the sale and purchase occur simultaneously and the new property is equal or greater in value.

Splitting your loan…
If you are considering a fixed rate loan we generally recommend you split the loan and have a portion fixed and a portion variable. Splitting the loan means you can hedge your bets on interest rate movements and still have the flexibility of additional repayments (and the offset account) on the variable portion of your loan, whilst receiving the protection of upward rate movements on the fixed portion.

Changes to interest rate…
Remember many factors affect our interest rate movements including local inflation levels, levels of the economic growth and global economic conditions. Many of these factors are hard to predict for the longer term. Keep an eye on market commentary and you can always consider independent financial advice.

If you have any questions or would like to discuss further, please do not hesitate to contact Lending Specialist on (03) 8805 1800 or email barry@lendingspecialists.com.au