Is it time to fix your loan?
15 July 09Now that the big movements in interest rates have settled somewhat a lot of people are starting to ask about fixing their rate.
Whilst there is no hard & fast answer to that question, it really comes down to your individual circumstance. Westpac have announced that they have now revised their forecasts to eliminate rate cuts from their view. They have also stated that they believe rates will increase, but hold steady until early 2011. Saying this, there are still uncertainties throughout 2010 which could change that view.
Fixed rate loans:
Fixed rate loans have traditionally been associated with strict loan conditions, however with flexible new products available, and interest rates relatively low, fixed rate loans are currently quite popular in Australia (though not as popular as standard variable rate loans). The majority of fixed rate home loans allow extra repayments and include redraw facilities. Business loans are not as flexible as home loans; however more products are becoming available which allows you to pay off a portion in advance, or has re-draw facilities.
Some fixed rate loans still charge you for making early repayments, which means that if your financial situation becomes more positive, you will either have to pay a fee, or keep the loan for the original term and pay the full interest amount.
If choosing a fixed rate loan, you need to consider carefully the term of the loan. For home loans, this is usually between 1 to 5 years. The most popular loan terms are 3 years. This is because it tends to give a sense of security as well as a degree of flexibility.
Variable rate loans:
Variable rate loans usually provide options and flexibility, but they can be risking in a rising interest rate market if you have overcapitalised on your loan. The important thing to do when taking out a variable rate loan is to plan and budget for hikes in interest rates, and make sure that you are able to meet your repayment obligations if rates rise.
