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In light of the recent interest rate cut and the likelihood of another in the coming months, Australians should beware of banks seeking to woo their customers in to “locking in” a fixed rate home loan. “You’re unlikely to ever see them this low again,” they will say and while they’ll be careful never to guarantee anything, no doubt their advice will lead you to consider your options.
But before you pull the trigger and give in to the attractiveness of long-term low rates, it’s important to consider the fact that the banks are not in the business of doing their customers favours. Whether we like it or not, banks are money making machines, and like casinos, the odds are always stacked in their favour.
When it comes to fixed interest lending contracts, banks will often throw in some subtle clauses just to ensure that they have themselves and their healthy profit margins covered. While fixed rates do have a place in the market and can be suitable in certain situations, it is important to consider the below points before making a decision:
No Offset account in most circumstances
Most fixed rate loan contracts don’t include a mortgage offset account which means that you won’t get to enjoy the potential interest lowering benefits an offset account can offer.
Limitations on how much you can pay-off in a single year
You’d be forgiven for thinking that locking in a low-interest rate might help you pay off your loan at a faster rate. But with some loans banks will actually whack you with a large fee for paying off more than your agreed yearly repayments.
Break costs in the event you need to sell
In the event that you need to sell your house and pay-out your loan, some loan agreements will dictate that you have to pay a large fee in order to do so. This sort of fee is more common with fixed interest loans.
You won’t get to benefit if interest rates become lower
This is the obvious one but it can be easy to forget when your finance brokers Melbourne is telling you that interest rates are unlikely to get any lower. The reality is that nobody has a crystal ball when it comes to these things so it’s important to weigh up your options, get some professional advice from someone you trust and make the decision that is right for you.