WITH home loan interest rates at historically low levels, MOVE is often asked by prospective home loan and refinancing clients whether a fixed interest rate home loan is the way to go.
The answer is: it depends. There are a range of factors you need to consider when deciding what type of loan is the best option for you, from your preferred way of managing your money, to where you see yourself three years from now.
So if you've been wondering whether you should look at switching to a fixed rate home loan, let's explore your options...
If you've ever been through the process of selecting a home loan you'll know that there are literally hundreds of different loans to choose from.
The majority of home loans fall into one of three categories: fixed rate loans, variable loans and split loans. Each type of loan has its advantages, but how do you know which one is right for you?
To help you decide, we've broken each loan type down into its pros and cons so you can get a better idea of which option might suit you best.
Fixed Rate Home Loans
A fixed rate home loan means that you lock in an interest rate for a set period of time (usually 1, 3 or 5 years).
At the end of the fixed term, the loan will usually revert to the standard variable rate offered by the lender.
While fixed rate home loans ensure that you are not affected by interest rate increases, it also means that you won't get the benefits of interest decreases. Fixed rate home loans can also restrict features such as redraw facilities, extra repayments and break fees often apply.
Locking in an interest rate will mean that interest rate rises won't affect you.
Your repayments will not fluctuate, which can make it easier to budget.
Locking in an interest rate will mean that interest rates drops won't apply to you.
Break fees apply if you want to end a fixed loan before the contracted end date.
Capped or no extra repayments.
Variable Home Loans
If you decide not to fix your home loan, your interest rate will fluctuate with the market interest rates. This means that your interest rate could rise and fall over the life of your loan, which may affect your repayments. Variable rate home loans are generally more flexible with your repayments, redraw facilities and offset options.
You'll reap the benefits of lower repayments if interest rates drop.
You could pay off your home loan faster by making extra repayments.
No exit fees if you want to refinance your loan or sell your property.
If interest rates increase so will your repayments.
A variable rate option is also great for people who are planning on 'flipping' their property - in other words, people who buy property to sell it shortly after, because there are no exit or break fees.
You can also take advantage of fixed and variable options by splitting your loan, meaning that one part is fixed and the other part is variable. This can offer you the best of worlds, security from interest rate rises and the benefits of interest rate drops.
Only the variable rate portion will be impacted by interest rates.
Allows interest rate security on the fixed portion, with repayment flexibility on the variable portion.
Allows access to variable loan features, such as extra repayments and redraws.
Interest rate increases will affect your repayments on the variable rate portion.
Break fees apply if you want to end the fixed rate portion before the contracted end date.
Capped or no extra repayments on the fixed portion.
Two repayments versus one.
Making the decision
Before you make any decisions, get in touch with a MOVE home loan specialist to discuss your options. They'll take the time to understand your lifestyle, commitments, and plans for future, and help you get the loan that's right for you
Isn't it time you made the MOVE and joined the credit union that's dedicated to the transport industry?
Give us a call on 1300365216 to find out more or visit us at www.mymove.com.au.
Railways Credit Union trading as MOVE. ABN 91 087 651 090 AFSL/Australian Credit License 234 536.
Refinance brings big savings to a young family
For MOVE member Cailyn, refinancing to MOVE got her a whole lot more than just a better rate on her home loan.
She was able to streamline her debts, slash her fortnightly repayments and borrow the extra money she needed to do some renovations including a new bathroom!
Cailyn has been a member of the Credit Union since 2009, but only started to look at refinancing in late 2015 as a way to try and reduce their overall monthly expenses.
In addition to her home loan, Cailyn and her partner were also paying off a personal loan at 13.74% p.a. interest and a car loan from another financial institution that was charging an incredible 36.00% p.a. interest!
The combined monthly repayments for these three loans came to whopping $1600 a fortnight.
Here's how we helped
When Cailyn contacted us she was immediately put through to one of our Lending Specialists. After discussing her situation we were able to help Cailyn consolidate all three loans into her new MOVE Economy Home Loan.
Taking advantage of our competitive interest rate means she will now save thousands of dollars in interest.
It also means she has slashed her fortnightly repayments from $1600 per fortnight to less than $600 per fortnight.
"It's so much better," Cailyn said.
"I honestly don't know how we were managing to live."
A new bathroom and a happy ending!
But that's not the end of the story. As well as helping her get more from her home loan, MOVE was also able to help Cailyn get the new bathroom she wanted for years.
Her lower fortnightly repayments now meant that MOVE was able to lend Cailyn the extra money needed for the bathroom plus several smaller renovations around their home.