Home Loans - To Fix Or Not To Fix?

THE nation’s largest lender, Commonwealth Bank, has made a drastic move to put the brakes on investment lending. In a decision, that will likely see other lenders follow, the bank said it would be stopping the acceptance of any new refinance applications for investor loans from Monday February 13.

​In a notice sent to mortgage brokers, CommBank said they are “committed to consistently delivering the best customer experience for home buyers, upholding the highest level of professional standards, and meeting our responsible lending and regulatory obligations”.

I spoke to Mark Bowyer, broker and owner of Finance Options about this:
 
“In addition, Commonwealth have removed the negative gearing tax benefit from their Serviceability Assessments, making it harder to qualify for a loan”, Mark said.
 
“What we are also seeing, is that last week, several lenders increase their fixed rate loans”
 
So, what’s all this mean?
 
With competition for investment lending reducing and rates apparently on the rise, if you’ve been thinking about refinancing your loan and fixing rates, now is the time to finally do what you’ve been putting off for a while.
 
Fixing your rate ia big decision and it doesn’t always mean you’ll save money, so here are 4 questions you should ask yourself before you fix rates.
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1. Are My Circumstances Likely To Change

​If there’s a possibility that your circumstances may change which may make it harder to meet the repayments on your loan, you might want to think about fixing. Scenarios could include:

• Changing jobs
• Starting a business
• Having children

Fixing will provide you with the certainty of knowing what your repayments will be no matter what happens to interest rates. This will mean that if rates rise further, your repayments will stay the same. If you’re likely to experience any of the above changes, there’s a good chance that this will be a huge relief at the time and provide a sense of peace of mind in the meantime.
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2. Do I Have Any Windfalls Or Lump Sums Coming

For lenders, you cannot generally pay more than the set repayments on a fixed rate loan*. This may leave you lamenting a lack of planning if you were to receive a windfall and wish to knock down your loan.

If you are expecting a windfall, it might be best (depending on the size of your loan and expected windfall) to maintain a portion of the loan on a variable rate. Almost all lenders will enable you to fix a portion of your home loan based on almost any percentage you wish.

*Offset accounts are often not allowed or calculated on a small percentage partial amount on a fixed rate loan. 
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How LONG Should I Fix For?

This can vary, depending.
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Most people I speak to fix for between two and three years. The reason being that this is usually where the best-fixed rates exist as well as providing some cost certainty over the medium-term for most clients
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Will I Pay More If I Fix?

This is usually a function of what term you decide to fix for – generally speaking the longer the fixed term the more expensive the rate becomes. This is because banks and lenders price their fixed rate mortgages on the basis of future expectations. 


Whatever you do, before fixing you should be consulting your mortgage broker or financial adviser to run the numbers for you on the different periods and rates to ensure that you chose the one with the highest probability for working well for you.

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IMPORTANT - This information is shared with you purely for the purpose of financial education. It is based on generally available information and is not intended to provide you with specific financial advice or take into account your objectives, financial situation or needs. You should consider obtaining financial, tax or accounting advice on whether this information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. See full Terms and Conditions here.