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What to consider while switching to a lower fixed rate

09th Dec, 2020 | Refinance

In this article:
If you're considering switching from a variable rate to a fixed rate loan in the wake of the recently announced RBA rate cut, be sure to weigh the saving benefits against possible trade-offs like no offset account and redraw facility.

In the wake of the recent November 2020 RBA rate cut, lenders that have chosen to pass on the rate cut benefit to borrowers are doing so through their fixed rate offering. So, if you are looking at switching from a variable rate home loan to a fixed rate offering with a lower rate here are a few things you should keep in mind.

Loan Features

Fixed-rate loans usually come with fewer loan features like a redraw facility and an offset account. Both features contribute significantly to expediting homeownership. So, while considering a lower rate fixed rate product ensure that the trade-off in terms of saving does not significantly impact your overall property ownership goals.

Option to pay in more

Once again fixed rate offerings have lesser flexibility in terms in of changing repayment amounts or frequency, limiting opportunities to close your loan sooner. While there are some fixed- rate products that offer some scope to pay in more, carefully weigh your savings benefits against flexibility pertaining to your repayment amount and frequency.

Flexibility to sell your property

If you opt for a fixed rate product, selling your property may require you to end your fixed-rate loan and pay an exit fee. There are no such exit fees involved in a variable loan.

Ability to fix a portion of your loan

One way to enjoy benefits of both fixed-rate and variable rate offerings is to fix a portion of your loan and leave the remaining on a variable rate. So, through the variable part of your loan, you could access all variable facilities like redraw, offset account and the ability to pay in more while enjoying lower rates for the portion of your loan that pegged to a fixed rate. However, the option to sell your property will still involve an exit fee as a portion of your loan is fixed.

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The best approach to making a switch to a lower fixed rate offering is to understand your long-term property objectives which may include

  1. Quicker home ownership
  2. Smaller repayment amounts to add back funds into your monthly budget
  3. Selling your property
  4. Using the equity you’ve built in your property to access more funds
  5. A combination of two or more of the goals mentioned above

Each borrower’s circumstances are unique, and a mortgage is a long-term commitment. Your goals and circumstances are likely to change over the life of a loan. The recent RBA rate cut is an ideal time to revaluate your objectives and scope the market for saving opportunities. Rely on the professional advice of a mortgage broker to find the best option for you as per your individual goals and challenges. Not only will a mortgage broker help you navigate the complexities of the mortgage landscape and compare multiple offerings, but will also handle the paperwork should you choose to make a switch.

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