Do fixed-rate home loans help you save ?
If some people can save more by fixing their home loan rate, how do you know when it is the right time to fix?

How to tell if it is a good time to fix
Knowing whether to fix or not is the question on most home buyers minds, but this decision all depends on the market and timing. Ultimately, fixed-rate home loans can save you money if and only if you lock in a lower rate at the right time, that way if rates do rise you will be better off.

But how do you know when it is the right time? As a general guide to help with your decision whether to fix or not, the best time to fix is when the gap between the average fixed-term home loans and the average variable rate home loans are close.

For instance, according to RateCity, in October the average two-year fixed rate was 7.28 percent, which was 10 basis points less than the benchmark standard variable rate (the average of the major four banks) and 23 basis points higher than the average standard variable rate. It was also the lowest it had been since December 2009.

What to consider when applying for a mortgage
But before you make the decision to fix or go variable, here are some tips on what you should consider:

  • Generally, fixed interest rates are higher than variable rates mainly because you are paying for the security of a constant rate for a fixed period, with the added benefit of consistent repayments.<br>
  • If you have a feeling that interest rates might rise in the near future, you could be better off fixing your mortgage. Let’s say you wanted to take out a mortgage valued at $300,000, the average three-year fixed rate was 7.64 percent and the average standard variable rate is 7.06 percent. Even if the variable rate was to increase by 1 percentage point over the next three years, you could save $1200 by locking in a three-year fixed rate.
  • Work out what features you need and compare fixed with variable deals to see which option is most likely to save you in the long-term. Shop around and compare home loans to see which one offers the best rate and features.

While knowing whether to fix is generally all about timing it is also about doing your research. Do your homework and if you think you can save more by fixing, then do what suits you.

Posted by RateCity.Com.Au on 22nd November, 2010