This spiked interest amongst homeowners and Google’s trend results showed a massive spike in those searching for terms like ‘5-year fixed mortgages,’ over the last few weeks. Taking all of this into considering: is it really a good idea to fix your mortgage and when should you do it? We’ll take a look below. 

 

 

There are hundreds of thousands of Aussies choosing to fix their home loans and over the past few years, the fixed-rate home loan has become more popular than ever. Most homebuyers have recognised that the state of the housing market and the economy has provided some of the most affordable interest rates in Australia’s recent history and they’re keen to hold on to these rates as long as possible. 

 

There are a few things to keep in mind though before you fix your mortgage. One of those is determining whether rates are really at their lowest. Fixing a mortgage at the current rate only to have the national average fall further could put your current lifestyle at risk or leave you missing mortgage payments if your income falls. 

 

 

Let’s take a look at the differences between both fixed and variable loans. It’s important to understand how these types of loans work and whether they’ll work for your lifestyle in the event of an interest rate change. Sometimes both of these loans have the ability to disrupt your disposable income, though at different levels. 

 

The biggest advantage that will come with a fixed rate mortgage is the certainty it gives you. No matter what the economy is doing or where rates go, you’ll always know exactly what your repayments will be over the period that’s been fixed. If you’re a first home buyer, this stability and absolute certainty can be really helpful as well as reassuring. 

 

One of the main disadvantages is that the fixed rate loan will be far less flexible than other types of home loans. This means that you’ll often find mind-boggling contract break fees. A second disadvantage is that if interest rates do fall during the time you’re in a fixed term contract, you won’t be able to take advantage of these as you’ll be stuck paying the rate from a few months or even years ago. 

 

 

As is recommended with any type of contract, you should always think about a few things like how this new fixed mortgage could affect your lifestyle, the accessibility of the equity in your home as well as a few other smaller details. One of the most important considerations or focuses should be seeking out a responsible and capable broker who is able to get you a competitive fixed-rate loan. 

 

 

You should always thoroughly plan ahead to determine whether a fixed rate will reduce your disposable income or even absorb it altogether. Can you or your significant other both afford to sustain this rate for a long period of time? Will a job loss or reduction in income leave you in severe financial stress? Be sure to go over these and deeply plan all outcomes before committing to a fixed-rate loan term. 

 

If you fix your mortgage you’ll notice that the borrowing capacity against your home will be severely slashed or might even be prohibited altogether. On top of this, if you want to refinance your mortgage you’ll be forced into paying break fees that could be upwards of $10,000. With that said, if you believe that you’ll want to access your home’s equity or possibly even refinance within a year or two, you shouldn’t fix your mortgage for more than one to two years. 

 

 

Taking into consideration all of the information above, you might still be deeply interested in fixing your mortgage and chances are you’re focused on making sure that you choose the best time to do so. The best way to determine whether it’s a good time to fix your mortgage will rely on your own personal finances and lifestyle. 

 

If you believe and are confident, that your current income stream is solid and sustainable for the years to come and your daily expenses, bills and disposable income won’t be negatively affected by the proposed fixed rate, then it would be a wise idea to fix your mortgage. This way if rates rise in the future your income and lifestyle will remain sustainable - at least until the fixed term ends.