Low fixed interest rate home loans are starting to give young Aussie first home buyers and seasoned investors the confidence to buy property.
The key reason being that fixed rates offer buyers the opportunity to plan ahead, treating their home loan as a regular bill rather than an unknown variable.Fixed rate home loans allows you the opportunity to lock in an interest rate for the fixed term period. For example, a 3 year fixed term home loan will remain at that rate for 3 years regardless of variable interest rate movements.
Most lenders place restrictions on their fixed rate loans such as;
- Restrict extra repayments to a limit each year beyond the minimum repayments
- Do not allow the borrower to redraw extra repayments during the fixed loan term
- Do not allow 100% offset accounts to be attached to the loan.
- Charge break fees if the borrower exits the fixed loan term early. Break fees can cost thousands of dollars.
However, some lenders will allow unlimited extra repayments, let you redraw extra repayments and attach an offset account to the fixed rate home loan. An assessment of fixed rate versus flexible features will need to be considered before selecting any fixed rate home loan.
Always be mindful that break fees can cost you thousands of dollars. You should refer to the terms and conditions of your home loan for the specific situations where you may be charged a break fee.
The lender will charge a break fee if:
You repay the home loan in full before the end of the fixed rate term
You make a repayment in excess of the allowed amount per annum. The allowed amount is the additional payment you can make in a year before break costs may become payable and that amount is set out in your loan agreement with your bank
The total amount owing on your home loan becomes immediately due for payment because you are in default
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