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Teachers Mutual Bank  have moved the goal posts with a fantastic fixed rate home loan on 3 years fixed rate at only 4.49% –  you should be thinking very carefully about taking advantage of at least some of the great rates on offer at the moment.

As a mortgage broker I see a great deal of confusion on the subject of fixed rate home loans.  These loans are very different to other loans and they even have their own terminology – my advice is GET ADVICE and who better than a professional mortgage broker 😉

Do not enter into a fixed rate loan just because you think the interest rate is good and you will come out ahead of the banks – that is a big gamble and history suggests that you will probably lose.

PROS

  • if interest rates start to increase you can relax in the knowledge that your rates are locked in

CONS ( do not apply to all lenders )

  • if interest rates start to decrease you will fret over the fact that you are locked in,
  • if you want to exit the loan, for any reason and if rates have fallen you can be up for very significant break costs and I mean potentially tens of thousands of dollars,
  • in order to secure the rate that you are quoted you will normally have to pay a rate lock fee – typically 0.15% of the loan amount.  Otherwise your get the fixed rate that applies on the day that your loan settles,
  • with most lenders your ability to make extra or lump sum repayments are severely restricted and you cannot’ normally redraw these extra payments during the fixed rate period,
  • very, very  few lenders offer a 100% offset account which links to the fixed rate loan.

This doesn’t mean you shouldn’t consider a fixed rate home loan – you should simply ensure that you understand the limitations.  We do have lenders who offer flexible fixed rate loans with repayments or offset accounts but that is by no means typical.  Contact me to discuss your individual needs.

A quick note on comparison rates – because fixed rates normally revert to standard rates ( without discount) at the end of the fixed rate period you would choose to either fix again, switch to a discounted variable or simply refinance.  Comparison rates can’t take this into account and so they are basically irrelevant for fixed rate loans ( and most others) – see article on ‘comparison rate confusion‘.

I just wrote a current note on rates at http://www.peachhomeloans.com.au/mortgage-news/2012/09/a-quick-note-on-fixed-interest-rates/ you might find interesting.