Should You Change To A Fixed Rate Mortgage?

Apr 11, 2023

When it comes to your mortgage, one of the most important decisions you can make is whether to go with a fixed rate mortgage or a variable rate mortgage. While both have their advantages and disadvantages, a fixed rate mortgage can provide you with the security of knowing exactly what your payments will be each month.

This is not financial advice. As mortgage brokers we're not qualified to provide financial advice. We're experts on how lending products work and can explain the pros and cons of a decision to refinance all day. For long-term financial planning decisions you're best off speaking to a financial advisor.

We are allowed to have an opinion though. In this blog post, we’ll explore the pros and cons of fixed rate mortgages and discuss whether or not you should consider changing to one.

What is a Fixed Rate Mortgage?

A fixed rate mortgage is a type of loan where the interest rate remains the same for the entire term of the loan. This means that your monthly payments will remain the same for the entire duration of the loan, regardless of any changes in the market. This can be beneficial for those who want to budget their payments and know exactly what they’ll be paying each month.

Pros of a Fixed Rate Mortgage

One of the biggest advantages of a fixed rate mortgage is the security it provides. With a fixed rate mortgage, you know exactly what your payments will be each month, so you can budget accordingly. This can be especially helpful for those who are on a tight budget and need to know exactly what their payments will be.

Another benefit of a fixed rate mortgage is that it can protect you from rising interest rates. If interest rates rise, your payments will stay the same, so you won’t have to worry about your payments increasing. This can be especially helpful if you’re planning to stay in your home for a long time.

Finally, a fixed rate mortgage can help you save money in the long run. Since your payments will remain the same, you’ll be able to pay off your loan faster and save on interest.

Cons of a Fixed Rate Mortgage

The main drawback of a fixed rate mortgage is that you may end up paying more in the long run. You're essentially betting that rates are going to rise during the fixed term. If interest rates drop, you won’t be able to take advantage of the lower rates, so you’ll end up paying more in interest over the life of the loan.

Should You Change to a Fixed Rate Mortgage?

Whether or not you should change to a fixed rate mortgage depends on your individual situation. If you’re looking for the security of knowing exactly what your payments will be each month, then a fixed rate mortgage may be the right choice for you. However, if you’re planning to stay in your home for a short period of time, then a variable rate mortgage may be a better option.

Ultimately, the decision to change to a fixed rate mortgage is up to you. It’s important to weigh the pros and cons and decide what’s best for your individual situation. If you’re considering changing to a fixed rate mortgage, it’s a good idea to speak with a financial advisor or mortgage broker to get more information and advice.

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February 2024 Cash Rate

06 Feb, 2024

Property and cash rate predictions for 2024

Banks “stand ready to help” people with home loan problems

03 Jan, 2024

The Australian Banking Association (ABA) has launched a campaign encouraging borrowers struggling with loan repayments to seek help, in a valuable reminder there are options available if you're finding it hard to keep up with your mortgage. Your bank may be able to: Reduce your home loan repayments. Pause your repayments temporarily. Switch your repayments from principal and interest to interest-only temporarily. Increase the length of your loan (thereby reducing the repayments). ABA CEO Anna Bligh said banks understood many borrowers were facing challenging circumstances. “Banks stood by their customers during the COVID-19 pandemic, deferring payments for people who for the first time in their lives found themselves unable to pay. Banks stand ready to help people again now,” she said. “People who are finding their finances are stretched should not feel they have no options and they have to do it on their own. Banks have dedicated, highly experienced teams ready to help.” As your broker, I'm also here to help. You're welcome to contact me for advice; I can then speak to and negotiate with your lender on your behalf. The key thing is to move fast, because the further you get ahead of the problem, the more flexible and helpful banks tend to be.

Is 2024 the year to buy property?

02 Jan, 2024

The Reserve Bank of Australia has rounded out 2023 with the decision to hold the nation’s cash rate at 4.35%. 2023 hasn’t been an easy year for homeowners or ambitious first-home buyers. The cash rate increased from 3.10% to 4.35% over the course of eleven months in the RBA’s bid to bring inflation back within its target range. According to data from the RBA, the average home loan rate at the start of the year (for existing home loans) was 5.46% p.a.. If the lender passed on interest rates in line with the increased cash rate, that would make the interest rate 6.71% p.a.. Based on the average Australian mortgage of $599,000 on a 25-year term paying principal and interest, that equals an additional $459 per month simply to service the mortgage (from $3,661 to $4,123 per month). For first-home buyers, the average time to save for a deposit has increased to 14 years, according to a recent paper by the Australian Housing and Urban Research Institute Limited, with the national ratio of median house price to median income now sitting at 8.5. That is the hard reality many Australians are currently facing. So the question is, what will 2024 bring? Short of looking into an Australian-economy crystal ball, we can’t predict exactly what will happen with inflation, the cash rate and therefore interest rates. However, there are a couple of factors to consider. The RBA will meet only eight times in 2024 to determine whether to move the cash rate, down from the eleven in 2023. This means potentially less movements through the year. The next cash rate announcement will be 6 February. Economists from the Big Four predict the cash rate is at, or near, its peak. Some predict at least one more rate hike in 2024 and rate cuts likely not happening until at least December. Despite predictions of a decline in house prices in 2023, they have actually continued to increase in most areas around the country. This could be good news for refinancers as we enter 2024, as they could find their equity has grown. Why 2024 could be a good time for first-home buyers Despite some potential challenges, 2024 could actually be a good time to get into the housing market. Here’s why. Savings interest rates are up - the pro of the cash rate going up is that savings interest rates also tend to go up. This can help expedite saving for a deposit. It could be cheaper to be a homeowner - according to PropTrack data, it is now cheaper to buy an apartment rather than renting one in most capital cities (based over a ten-year period with a 20% deposit). In fact, a third of properties nationally are cheaper to buy than rent. The First Home Guarantee has expanded - in 2023 the eligibility criteria for the First Home Guarantee, Family Home Guarantee and Regional First Home Buyer Guarantee was expanded, enabling eligible buyers to get into the market sooner. This means if you have a 5% deposit (or 2% if you are a single parent or guardian), you may be able to use one of the schemes to purchase property without paying lenders mortgage insurance. ‘Help to buy’ scheme to be introduced - the federal government has announced plans to rollout a new scheme that will help up to 40,000 eligible buyers with as little as a 2% deposit get into the housing market with lower repayments. If 2024 is the year you want to purchase your first home, it is a good idea to speak with your broker to find out how much you may be able to borrow and set a plan in place to achieve your goal.

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