Today’s low fixed rates are swaying more borrowers towards locking in their loans.
A fixed rate loan is a great option for borrowers who take comfort in knowing exactly what their repayments will be over time. No matter what happens in the market, the interest rate is locked in for the fixed period. So it really is a case of setting and forgetting. But while the low fixed rate route may appear to be an ideal option, it’s important that borrowers do their homework before locking in. Because some fixed loans can have downsides for homeowners who don’t take the time to understand what they’re signing up for. A good fixed loan should work hard in a homeowner’s favour, delivering benefits well beyond that of a low rate. A fixed loan with 100% offset does exactly that by providing the potential to make a big dent in the amount owing. Here’s how it works.
Say you have a $300 000 loan and savings of $20 000 in your offset account. With 100% offset, you’ll only pay interest on $280 000. Based on a 5% interest rate over 30 years, that could save more than $60 000 and years off a loan. That’s $60K to spend on anything, other than interest.
Another loan feature to search for is additional repayments without penalty. This benefit typically comes with a relatively generous limit on the fee-free additional payments allowed (usually around $20 000 per year.) Free redraw and the choice to pay either principal and interest or interest only are other features worth holding out for.
The ability to split your loan is great feature too. It caters to those who are keen on fixing, but also like to hedge their bets on variable rates going down. This type of loan essentially splits the account in half; one portion is on a fixed rate while the other is on variable. Finding a fixed rate loan that offers a low interest rate, practical benefits and the flexibility you need can take some leg work. Having a good broker by your side can make all the difference.