While demand for swapping to a fixed rate mortgage is currently going through the roof – and for good reason – what are the primary benefits of doing so?
Regardless of whether you identify as a first home buyer, budding property baron, or are simply chipping away at paying off your family home, almost every Australian has been paying close attention to what’s happening with interest rates.
As one of the only tools left to fight skyrocketing inflation, the Reserve Bank Of Australia has repeatedly raised the cash rate – and therefore, interest rates – since over the course of the last three months. While the measures have started to dampen market prices for real estate, inflation is a figure that’s proving to be much more stubborn.
While homeowners are at the forefront of bearing the extra cost of living, there is one thing that many people can still do to combat the price hikes and minimize their financial stress: swapping over to a fixed rate mortgage.
Why You Should Consider A Fixed Rate Mortgage
While all interest rates are known to fluctuate as a response to global economies and key events, variable rates are arguably more exposed to them. As the name would suggest, a variable interest rate loan is a loan where the interest charged on the outstanding balance fluctuates based on an underlying benchmark or index that periodically changes.
Although benefits usually associated with a variable interest rate often include access to an offset account or redraw facility, plus greater flexibility, the downside is that homeowners are ultimately left exposed to market fluctuations. In turn, a growing number of homeowners have decided that opting for a fixed rate mortgage is the safer bet, with just a handful of the benefits of doing so including the following.
Clear Repayment Schedule – The primary benefit of opting for a fixed rate mortgage is the clarity that comes with knowing just how much you’ll need to pay off your home loan every month. This valuable information can work wonders when it comes to formulating a good budget, increasing your savings, and reducing anxiety around the cost of living.
Protection From Increases – Economists from all corners of Australia are collectively agreeing that interest rates are only set to increase further from now until at least the end of the year, and a fixed rate mortgage is one way for homeowners to protect themselves against the all but guaranteed higher loan costs set to come.
Lower Long Term Rates – Although this theory will depend on the current fixed rates on offer and the agreed contract duration, which is usually between one and five years, homeowners can expect to pay lower interest rates during that time if the cash rate is predicted to increase further – much like it is now.
While homeowners will have the stability of knowing what their repayments will be under a fixed rate mortgage, it does mean that if rates fall in the future, they will need to continue to pay the higher rate for the fixed rate loan term.
However, the current economic climate means that this is highly unlikely to happen, and therefore the benefits of securing a fixed interest rate outweigh the standard perks that would normally be on offer with a variable interest rate loan product. Ultimately, the right choice will boil down to your own individual circumstances, such as your current financial health and grand plans for the future.
If you’re one of the thousands of Australians currently feeling the pinch of rising interest rates, rest assured that you’re not alone. With inflation only set to increase further, there’s never been a better time to be proactive and get in touch with your local mortgage broker – but where do you find one?
Partnering With Home Loan Professionals
Navigating the complex world of home loans has long been regarded as stressful, frustrating and time consuming – but if you can find the right advice on sourcing how mortgages work, then the good news is that it doesn’t have to be.
Since their inception in 2012, the team at Madd Loans have worked tirelessly in providing over 2,000 Queenslanders with finance options to help turn their dreams into reality. With the entire brand being built on referrals, owner George Samios takes great pride in making the loan process both fun, educational and stress free – and he has a swag of awards to prove it.
If thinking about your financial future strikes a chord with you, then it might be time to speak to a professional. Whether you’re chasing mortgage solutions or a financial fairy godmother, the team at Madd work together as a collective to turn your goals into reality.