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SPLIT THE DIFFERENCE

These days most lenders offer split loans, so you can fix a portion of your loan but retain the ability to make extra payments if circumstances allow.

Home loan interest rates are at historically low levels, and 3 to 5 year fixed rates aren’t much higher than current variable rates. Should you lock them in?

Most people approach this question by trying to guess whether rates will go up or down from here. Our advice is: don’t do that. The current fixed rate is the market’s average estimate for rates over the period concerned, so unless you think you can out-guess the market, you should think about it from a different angle.

What are the benefits of a floating rate loan?

Basically, flexibility…

  • Most variable rate loans allow you to make extra repayments at no cost, so you can pay down your mortgage faster – which is the most powerful thing you can do to minimise the total amount of interest you pay.
  • Exit and break fees can be high for fixed rate loans but should be much lower for variable rate loans so you can refinance if you want to, or (sell up and) repay the loan if circumstances change.
What about the benefits of fixed rate loans?

Basically, certainty…

  • A fixed rate will make you immune to rate rises – at least for as long as the fix period, so if your ability to make the payments is very tight, this certainty may be worthwhile.
  • Household budgeting is easier when you know exactly what your repayments will be.
What are your thoughts?

Do you have a home loan? Are you in the process of applying for one? Is there anything else you’d like to know about borrowing to buy a home?

Join the conversation — leave a comment below and let us know what you’re thoughts are.

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