Add up the costs of locking in a fixed interest rate

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With interest rates at record lows, many homeowners – and those on the hunt for a new home – are asking the question: Should I take advantage of the low interest rates by locking in a fixed rate now?

Locking in a fixed interest rate may make sense, particularly if you think interest rates will soon be back on the rise. Besides any likely movement in interest rates, however, there are some other important factors you’ll need to consider.

Firstly, what is the comparison rate? When promoting home loans, lenders advertise the headline rate but must also provide a comparison rate. The comparison rate takes into account any set up and ongoing fees and is calculated using a standard formula. The comparison rate therefore gives you a more accurate picture of how much you’ll repay over the full term of the loan and allows you to compare loans from different lenders.

Is the headline rate promoted by the lender only applicable if the loan forms part of a package? Package fees vary, but will generally cost you between $350 and $400 per annum. This can make a significant difference to how much the loan is actually costing you, especially if your mortgage is under $300,000.

Are there any additional fees? Most fixed interest rate home loans charge a monthly fee. And if you pay out the fixed rate loan before the fixed rate term expires, expect to pay a penalty.

Of course, the plethora of home loans on offer each have their own fees, charges and conditions. You’ll need to really do your homework first if you are to save money by switching to a fixed rate loan. That’s where a Westlawn Mortgage Broker can add real value. A broker can help you compare home loans from different lenders and explain the interest rates, fees and charges applicable to each.

5 February 2015

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