After a historic year for interest rates, 2022 is anticipated to be far calmer in the home loan market, so should you fix your home loan today?
The fundamental advantage of a fixed rate is the predictability it offers. A fixed-rate mortgage means your interest rate is fixed for a set length of time, usually one to five years. As a result, your repayments are also locked in, protecting you from any future interest rate hikes that would increase your payments. You’ll have cashflow certainty and be able to budget for the time you’ve set because your repayments are locked in.
For example, if your monthly payments are fixed at $2,000 for the next five years and will increase to $2,200 when the fix expires, you may save the additional $200 each month for a vacation or repairs. You can split your loan if you want the benefits of both a fixed and variable rate.
What are the benefits of a split loan?
A split loan is when your house loan is split into two parts, one with a variable rate and the other with a fixed rate. If your lender allows it, you can split your loan as you choose, so 60 percent could be variable and the remaining 40 percent fixed, for example. If you had a $600,000 mortgage, $360,000 would be charged at a variable rate, while the remaining $240,000 would be charged at a fixed rate.
The advantages of a split loan are that it provides you with the advantages of both variable and fixed-rate loans. It combines the security of a fixed-rate loan with the flexibility of a variable-rate loan by providing cashflow certainty and locking in your repayments. With a variable rate loan, you can make extra payments, use a redraw facility, and take advantage of lower interest rates. You can also divide based on your needs, giving you even more freedom.
You can also utilise an offset account with a variable-rate account. An offset account is a transaction account that is linked to your house loan, and the money in it is used to offset the amount owed on your loan when interest is computed. This minimises the amount of interest charged over the loan’s life, shortening the term and potentially saving you hundreds of dollars.
If you had a $500,000 house loan and $50,000 in your offset account, interest would only be paid on $450,000 of your loan for the time the funds were in the offset account. With the majority of house loan rates now beating savings account rates, many people have their income paid directly into their offset account.
If you want to take advantage of Homestar’s great low fixed rate home loan offerings, chat with one of our friendly loan specialists today!
Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.