Interest rate rises by the major banks are monopolising the headlines and creating headaches with regard to the best option. Deciding whether or not to fix your interest rate comes down to a few key considerations.
You won’t necessarily be better off financially with fixed rates, as it’s not possible to predict what comes next. So, it’s all about determining how interest rate rises impact your personal financial situation.
Deciding whether or not to fix your interest rate comes down to a few key considerations.
If you’re worried about serious holes in your household budget and feel the need to manage the risk, fixing a portion of your debt may offer peace of mind. It’s all about risk versus benefit.
Therefore, if you know your lifestyle will be seriously impacted, fixing a portion might be a top short-term priority to manage the risk. To determine this, consider your ability to make extra payments. With variable debt, work out how much you can repay including a safeguard and fix the rest.
It’s not a good idea to fix 100% of your debt. A variable portion ensures you can use an offset account. Most lenders don’t offer an offset account for fixed rate products, and have a limit on the amount of additional repayments that can be made per year.
If you do feel the need to fix rates, start with your home loan or non-tax-deductible debt first.
Looking at maximising your borrowing capacity and accessing equity in the next five years? It’s not a good idea to lock in with one lender for the fixed rate period, as refinancing may attract high fixed rate break fees. The same concept applies if you are considering selling a property, so don’t fix your interest rate.
As a general rule, fixed rates don’t suit property investors as locking in may limit the flexibility to change lenders and maximise borrowing power. If you do feel the need to fix rates, start with your home loan or non-tax-deductible debt first. The impact of rate hikes on home loans is more substantial than an investment loan that includes tax deductions.
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For significant debt portfolios, staggering fixed rate expiry periods helps to spread the risk. This ensures all debt won’t come out of a fixed rate at any one time.
Another thing to consider is whether a fixed rate lock fee is worthwhile. A fixed interest rate applies at the date of settlement, not application. Therefore, if fixed rates change within this timeframe, you’re subject to the different rate unless you pay a fee at the time of applying.
If you’re still unsure and worried about the impact of interest rate hikes on your investments, get in contact with our broker and finance specialist team today.
The information provided is general in nature and should not be taken as advice as it does not take into account your personal circumstances, needs or objectives. Individual lender criteria applies to the approval of credit products. Terms and Conditions apply, and rates are subject to change.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186, Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and a related entity of DPN Pty Ltd. Casa Capace Operations Pty Ltd ABN: 79 624 981 184, NDIS provider Number 4050038018 trading as Casa Capace.