To fix or not to fix?

The Real Estate mortgage question

The big question answered by financial specialist Zane Torkington

If you’re coming off your fixed rate, it’s a good time to look at re fixing, restructuring, paying down a lump sum, or refinancing depending on your situation. In most cases, you will be able to do nearly all of the above without fees when your loan is floating, and you may even get some cash in your back pocket for your trouble.

Any time you do this, you are best to speak with a independent financial adviser, and let them know your future plans. Planning to get renovate, get married, buy a new car, or all 3? Customise your home loan to suit your bigger upcoming expenses. Do you want to save interest yet have the flexibility to pay off your mortgage years sooner?  Consider a revolving credit if your disciplined.  If you’re not, consider an over payment that you are fixed into.

Optimal rates that are coming through at the moment are 1-2 years.  Does that mean you should fix for that long?  Not necessarily… Are you planning to sell in a a year?  If so, don’t fix for 2.  Do you want the certainty of knowing what your repayments will be for 5 years?  Consider fixing for 5, but be aware that you will be paying a premium for that certainty, and rates could stay low.  You can also choose to split your loans into multiple parts, hedging your bets on rates, but be aware that you may be opening your lender up to taking advantage when your earlier rates expire.

Interest rates are at near all-time lows, take advantage!  They may not be low forever, so look to overpay your loan while times are good and watch your equity sky rocket.  For example, a small change in lifestyle could mean you and your partner paying an extra $100 a week each into your loan (on a $500K loan), would save you around 12 years and around $167,000 in interest!  While rates are important, the priority should be structuring your home loan to suit your finances.  You’ll save a lot more money than just trying to get the best rate.  A good financial will help with both.

Did you fix at a high rate?  Consider breaking your loan.  Fees vary hugely depending on the lender you are with.  Talk to an adviser who will get your break fees for you, and then survey the market for new rates.  A lot of people get put off when they call their bank and find out what the fees are in this situation.  The upfront cost may be off-putting, but the longer term benefits are usually there, and if you’re refinancing, the new lender may pay some, or all of these costs while you save money on the new rates.  Your adviser will make it clear on how it looks and break it down of you.  It all depends on your situation, so if you would like some helpful and 100% free financial advice, give Zane Torkington a call on 0800 11 LIFE.