Unlocking the fixed rate mystery

As Aussies we have historically chosen the ups and downs of a variable rate more often for our home loan. But the unprecedented fixed rates on offer these days are certainly raising some eyebrows.

Fixing is generally advisable if you think that you would face financial difficulty if rates went up by one or two percent. If the prospect of rates rising too high too fast is keeping you awake at night, you would be happy with the current deals out there… if you know where to look. Right now you can fix at 4.69% for 3 years and a perhaps more enticing 5.39% for 5 years.

To lock in at the very best rate will probably mean you’ll need to switch your home loan because fixed rates differ so much amongst the banks. In general, it’s probably not the ‘Big 4’ that will offer you the most attractive option. Banks like Suncorp, ME and Citibank are luring new customers with some of the cheapest fixed rates on the market. Another bank will even allow you to have a 100% mortgage offset account against your fixed rate loan!

The ‘certainty’ of fixing does cost you a little ‘flexibility’, as you can be hit with break fees if you sold or refinanced or even repaid part of your loan during the fixed rate period. That’s why it’s often advisable to split your loan, with a portion left on a variable rate. It costs no extra, so why not get the best of both worlds? Whilst part of your borrowings can be locked away at a terrific rate, the variable rate portion can be attached to your offset account with linked credit card.

If you have a loan against an investment property, perhaps you could keep your “home loan” variable (so it can be attached to your offset account and you can repay it as fast as you like) and fix the investment loan, which can be at another bank with the better rate. The interest on the investment loan is tax deductible so this is probably the loan you don’t want to reduce. A top-notch mortgage broker will always ensure your loans are structured to maximise the current and future tax benefits you are entitled to – and might be able to squeeze a better-than-published rate too.

I will be explaining mortgage structuring and tax tips at the iChoice $10 Charity Info Night    at Concord RSL on May 22, 2014. Come along and meet Wayne Pearce who will be talking about goal setting and other ‘you-beaut’ stuff.

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