Pitfalls of Current all time low Fixed-Rate Offerings

09th Dec, 2020 | First Home Buyer, Refinance

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Looking to benefit from the recent fixed rate cuts? Here are a few things to keep in mind to protect your interests.

With most lenders passing on the latest rate cut only through fixed-rate products, there is much discussion on the pitfalls of going with a fixed-rate loan. Despite the valid concerns and caution voiced by experts, there is a way to make a switch while protecting yourself. Let’s take a quick look at what you need to be aware of.

Revert Rate

A revert rate is a rate your home loan will switch to once the fixed-rate period of your loan ends. You need to check if this rate would be higher than the standard variable rate the market is offering. While most lenders don’t revert to rate that is significantly higher than the market average, there are exceptions. In some cases, the revert rate is used as a means to recover benefits passed on to borrower during the fixed-rate period. It is essential to steer clear of such fixed-rate products. Additionally, also take the time to gain a clear understanding of possible break costs. Break costs are nothing but exit fees you pay your lender should you choose to end your loan or refinance. If you find yourself in a position where your revert-rate is just too high, it’s necessary to understand how easy or expensive will it be for you to make a switch.

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Loan Features

We all know that most fixed rates offerings have lesser flexibility in terms of paying in more as well as increasing the frequency of repayments. However, as the mortgage landscape becomes more competitive and evolved, you will find fixed-rate products that offer some if not all benefits of a variable rate home loan. This could include benefits like redraw facility and an offset account among others. Thoroughly scope the market and carefully weigh the saving benefits from a lower rate against loan features. If you find it hard to navigate the complexity of the mortgage market, engage a mortgage broker to help you out. A mortgage broker gets paid by the lender upon loan settlement. So, their services are usually free for borrowers.

Flexibility to fix a portion of your loan

If you can’t find a fixed rate product that offers you the features you need, consider fixing a portion of your loan. As the name suggests, ‘fixing a portion of your loan’ means attaching a part of it to a fixed rate while leaving the rest on a variable rate. This lets you enjoy the benefits of both products – all-time low fixed rates and flexibility benefits of a variable rate loan.  

In a nutshell, you could benefit from the current all-time low fixed rates if you ensure that you don’t get stuck with an unreasonable revert-rate and don’t compromise on essential loan features. As mentioned earlier, the best way to go about considering and eventually moving to a lower fixed-rate loan is by relying on the professional advice of a mortgage broker. A broker will help you understand your financial goals as well as necessary loan features requirements and scope the market to identify the most competitively priced fixed-rate offering for your specific challenges. Additionally, your broker will also handle all the loan paperwork.

Reach out to us for the best way forward as per your circumstances.

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