7 Questions You Must Ask If You’re Considering Fixing Interest Rates

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Is it time to lock in some or all of your loans into fixed rates?

Or is it too late?

Interest rates were at historic lows and clearly are on the way up now.

Interest Rates2

The Reserve Bank has made it clear they’re going to increase the official cash rate a few more times till they get inflation under control.

Starting lat last year the banks slowly increased their fixed interest loan rates and now variable rate loans are costing more.

This has led many investors and homeowners to reconsider the cost of one of their biggest expenses – their mortgage and many are looking to lock in their interest commitments, recognising they’ve already missed the bottom of the interest rate cycle.

So how do you decide what’s right for you?

And what do you need to consider to ensure you make an informed decision?

I don’t know how much higher “official”  interest rates are going to rise but the money market is factoring in significant further increases in rates.

Of course “locking into” a fixed rate home or investment loan gives you the advantage of knowing what your commitments will be for a predetermined period – the fixed term.

This could be a suitable strategy if you want certainty for your cash flow commitments – especially if you’re worried about your cash flow.

However, there are also disadvantages that you need to be aware of before you make a decision.

With this in mind…

Here are 7 questions you should ask yourself when considering whether to fix your loans

1. Will I want to sell my property during the fixed loan period?

If so there could be a penalty for breaking your loan commitment.

2. Will I want to access the equity in my property to invest further during the fixed period?

Often this will come at a cost that may be prohibitive.

3. Do I need an offset account?

An offset account is a transaction account linked to your loan.

Many borrowers put their savings into this account and the credit balance here is offset against your outstanding loan balance reducing the interest payable on that loan. Most fixed-rate loans do not allow an offset facility.

4. Can I make extra repayments on my loan?

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