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Is Fixed Mortgage the Right Loan for You?

By Crowin Smith Subscribe to RSS | December 13th 2011 | Views:

If you’ve been keeping a close eye on the direction of the official interest rates as well as the trend in monthly market predictions regarding where they will end up, it’s easy to say that nobody can really tell the future interest rates. If experts can’t do it, then there’s no use trying to worry about it yourself. The best thing you can do to avoid the hassles of predicting whether interest rates will go rise or decline is to lock your mortgage in fixed rate for a certain period.

Most loan types can be secured as a fixed mortgage. It will be up to you to decide whether fixed rates will be able to help you or not. But of course, you need to take into consideration some factors including the market trend. To determine if a fixed interest rate loan will work best for you, take some time to think about the features of a fixed rate mortgage.

Interest rate will be the same despite of the official rate fluctuations

Should the Reserve Bank decide to bump up the official cash rate, chances are your lender will comply and update their interest rates. However, borrowers with fixed rate loans are not affected by such increase.

Interest rate will be fixed for a specific period

You cannot have your mortgage loan in fixed rate for the whole duration of its term. Normally, fixed terms range from 1 to 10 years. Of course, that will depend on the type of loan you get and your mortgage.

Additional payments might not be possible

When you choose a fixed rate loan, one of the limitations would be the inability to make additional repayment. Your lender will charge you for making extra payments if you insist on lowering your principal loan amount.

Fixed rate loans can prove too expensive for refinancing

Before your take out a fixed rate loan, take into consideration the need to refinance in the future. If later in the long run you decide to break free from the fixed rate, you will be subjected to high exit fees which could cost up to $30,000.

If you are buying your first home, you probably have a long way to go when it comes to meeting the deposit requirements of your loan. After repaying your mortgage in full, you probably won’t have enough left on your saving since you have dedicated most of your funds to repaying your loan. Having a fixed mortgage will give you a better grasp of your budget since you won’t have to worry about surprise interest rate increases in the future. Plus, having a fixed rate loan means you will be given a more affordable interest rate.

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