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Is it too late to fix your loan?

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With so much speculation that the RBA is set to lift interest rates before Christmas, many banks and lenders have hiked their fixed rate products in the last month. So does this mean it's too late to fix your loan?
 
A fixed rate provides borrowers with some stability, as it schedules your mortgage repayments into set amounts each month that can’t be varied – regardless of any changes that Reserve Bank, or your lender, make.
 
Over the last month many banks and lenders have increased the interest rates attached to their fixed rate products. At Citibank, for example, their 3-year rate has jumped from 7.09% to 7.29%, while the Big 4 (ANZ, Commonwealth, NAB and Westpac) have lifted their fixed rate products by an average of 30 basis points across the board.
 
But Mark Evans, owner/manager of Mortgage Choice Mt Ommaney, says that just because fixed rates have increased slightly, it doesn’t mean it’s too late to lock in a competitive fixed rate.
 
“It's pretty much a given that we'll soon see an increase to variable rates, prompted by either a Reserve Bank cash rate move or by lenders moving interest rates regardless,” he says.
 
“And while fixed rates have recently been on the slight increase with lenders, the gap between fixed and variable rates has certainly closed over the last 12 months. So there are [still] some competitive fixed rates on offer.”
 
While he has only seen a slight increase in demand for refinancing to fixed rates from existing customers of late, Evans says the trend towards fixing is definitely growing with new mortgage applicants.
 
“New borrowers are certainly interested in exploring the fixed rates at the moment, given the speculation of further variable rate rises,” he confirms.
 
“Of those that are interested in fixing, I would say the majority of my customers would prefer to only fix a portion of their loan and keep a variable rate component as well. I’m also finding that the tighter the borrower’s budget, the more they’re inclined to want to fix the rate and at least guarantee repayments for a specified period of time.”
 
If you are looking at fixing part or all of your loan, then “you should really get your skates on”, Evans adds.
 
“The majority of economists say we're looking at several rate rises by the end of 2011… but [you need to] be sure that you have a good understanding of your current and future needs and financial situation,” he says. “A fixed rate home loan doesn't suit everyone.”
 
It’s vital that you base your decision on clear facts and figures, adds property developer Carly Crutchfield, CEO of CCORP.
 
“If you’re a homeowner with a mortgage, it can be tempting to fix your rates. Many people act out of fear that rates will continue to rise, but what most people forget to consider is that fixed rates are most often higher than the current variable rate,” she says. 
 
“Sometimes, people prematurely fix their rates then realise that they’ll actually be paying more – and they’re then stuck.”
 
Rather than fixing your rates right away, Crutchfield suggests that you increase your mortgage payments to the amount you would be paying if you did fix at a higher rate, so you can test the water.
 
“This gives you a feel for whether you can afford repayments on a fixed rate loan,” she says. “After three months of payments, if you feel comfortable with the repayments and you still feel like you want to fix your rates, then go for it.”
 
 

It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan

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