A 15 year fixed rate is the maximum time you can fix the rate of a normal loan in Australia.
There are pros and cons of fixing your loan for such a long term and you need to work out if it is the right choice for you.
Many people chose to fix their loan to protect themselves from the possibility of future economic catastrophes. Locking your rate can save you from hardship in tough economic times.
If you have a fixed rate the banks will often allow you to borrow more because they deem you less of a risk. If you have a high net worth or are on a fixed income and interest rates increase, there is a chance you may not be able to make the repayments on your loans.
Fixing rates can also save you money. If you have knowledge of the financial markets and the probable future of interest rates you can secure low interest rate for the long term.
Are fixed rate loans flexible?
Fixed rate loans are less flexible than variable loans. Typical fixed rate loans have restrictions on extra repayments and you may not have access to features like a redraw facility or offset account.
There are lenders that lend fixed rate loans with these features but not for such a long term.
The good news is you structure your loan to get the best of both worlds.
How do you structure your loan?
If you want to fix for the long term you need to consider the chance that you will pay off the loan during the fixed term and if the number extra repayments you will make.
If you make the decision to sell your property during the 15 year fixed term, the bank can charge you for their lost interest. This is known as a “break fee” and can quickly work out to be tens of thousands of dollars. If you want to sell your property or refinance then you should not fix for 15 years.
There is a good chance that over the next 15 years you will want to make extra repayments on your loan and you can split your loan to take advantage of this. Generally, if your loan is 100% fixed you are not allowed to pay these additional repayments. You can choose to fix 50% to 80% of your loan and the rest of your loan stays on a variable rate. This will give you the best features of both fixed and variable loans because it provides you protection against rate increases and you can still make extra repayments on the variable amount of your loan.
During the settlement time between when you apply for your loan and when the loan is advanced the rate may increase. If rates are raising or there is market instability, some banks offer a “rate lock” for a small $300 – $400 fee and it is definitely worth price for the protection.
Who has the lowest fixed rates?
Unfortunately, this isn’t an easy question to answer!
Banks are constantly adjusting their fixed rates to suit their wholesale funding costs in response to the money market. You should know that 15 year rates tend to be far more stable than 1 year, 3 year or 5 year fixed rates because there are less sensitive to short term changes in the money market.
The best bank for your fixed rate loan depends on if your loan is a low documentation or not, the amount you want to borrow and if you are eligible for a professional package.
You can contact us and we’ll help you find out the most suitable lender for you.
Is there any way a lender can change a fixed rate?
For the majority of cases the lender cannot change your rate if it is fixed.
On the other hand, lenders can adjust a variable interest rate at any time, even if the reserve bank hasn’t.
You loan contract contains the specific conditions for your loan. Please refer to it for more detailed information. These terms differ between lenders and loan types.
What if your lender goes bankrupt?
Generally, if your lender goes bankrupt your fixed rate will remain the fixed. Although, some loan contracts allow lenders to change fixed interest rates and in this case the new lender that takes over your loan may choose vary your fixed rate.
If you are using a non-conforming lender or smaller non-bank lender there is a higher chance they will go bankrupt. Many people choose a fixed rate when dealing with these types of lenders and that offers them additional protection in the case that the subprime crisis is repeated.
How do you apply for a fixed rate loan?
Please call us on 1300 55 10 45 to arrange a call back from one of our specialists.