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As the Reserve Bank have put Interest rates on hold again, the comparison between the projected Fixed and the current Variable Rates are coming increasingly in Focus with many different opinions as to the best option for Borrowers. Or with the people who have home loans and having some difficulty with home loan interest rates. Do you take the reduced fixed rate and lower Repayments that will be very handy in Budgeting, or do you wait? Is it as simple as the oft quoted ‘A bird in the Hand ‘being preferable against ‘A Bird in the Bush’ i.e. the security of the fixed Loan against the uncertainty of the variable rate loan? One would suggest that if the Banks are offering reduced Fixed Rates which will run for some years in the future that they have factored in a lot of financial data that indicates to them reduced rates for many years or they wouldn’t offer these. The Financial Gurus say there will be several further reductions in the Bank Rate in the next few months, which would further reduce the Variable Rate costs and could then provide savings against the current fixed rates. It is not as simple as “Certainty against Uncertainty “as there are other matters to consider ,including perhaps the possibility that clients may for many reasons have to finalise their Loan facility , be it- the Sale of the Property due to – • Illness • Business Problems • Property Sale • Relocation Or may even need to refinance the existing Loan facility, so care must be taken in selecting the period for the Fixed Loan, for say 2, 5 or 10 years, then they become a Variable Rate at the end of the period. You will need to be sure what your circumstances might be in that period and what the financial scene will be then. It should be noted that Non-Conforming Lenders , i.e. those who offer finance to Credit impaired clients or those who do not have current Financial Reports ,do not offer Fixed Rate Loans . Loans through Private facilities are normally Short Term, usually up to 12 months, and are fixed for the period of the Loan. There can be huge Exit Fees for some Fixed Loan Contracts and usually they do not allow additional payments to reduce the Loan. This must be ‘Weighed up ‘in the decision particularly if there is a possibility that you may sell your property or refinance within say 2 years. Without a Crystal Ball it is difficult to analyse years ahead what will be the financial position and it is possible that Rates will rise again and this must also be factored in to any decision. The third factor to consider is to have the Loan split eg. 50-50 which will give you the benefit of both worlds and you have halved the Risk aspect. Interestingly Fixed Rate Loans in March 2012 were 15 % of the total Loans in Australia and in June 2012 were a lesser percentage. From our perspective when looking at a Home Loan Product, you’ve got to look at your own Personal circumstances; after all it’s your money. Audrey Patts has been helping thousands of clients with mortgage solutions, she has assisted individuals,small business even big companies with bad credit loans and has offered a lot of lending solutions to all that is experiencing financial strain. Refinancing your Mortgage
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